ANZ RESEARCH
NEW ZEALAND ECONOMICS ANZ AGRI FOCUS WATER DIVINING
JUNE 2013 INSIDE Feature Article The Month in Review Rural Property Market Economic Indicators Key Commodities Economic Backdrop Borrowing Strategy Education Corner Key Tables and Forecasts
2 22 23 25 27 28 29 30 37
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 Just about all New Zealand’s main soft commodities are set to show some improvement at the farm-gate in 2013-14. Often the main driver is supply reductions from weather related events either domestically, or abroad. But changing trade patterns from increased demand in Asia and other non-traditional markets continues to be important also. While the broad-based nature of farmgate increases look positive, in many cases the forecast improvements are only modest and follow declines in 2012-13. Higher prices are also required to help with the financial recovery from this year’s drought in many regions. THE MONTH IN REVIEW
CONTRIBUTORS Cameron Bagrie Chief Economist Telephone: +64 4 802 2212 E-mail:
[email protected] Con Williams Rural Economist Telephone: +64 4 802 2361 E-mail:
[email protected] David Croy Head of Market Research – NZ Telephone: +64 4 576 1022 E-mail:
[email protected] Glen Thompson Senior Insights Manager Telephone: +64 9 2526878 E-mail:
[email protected]
In most parts of the North Island pasture conditions have improved substantially, although pockets of concern remain. Combined with lifts in farm-gate prices, this has improved morale. Feed conditions in the lower half of the South Island are tighter though, heading into winter. This has seen a significant gap open up between North and South Island prices for prime beef and lambs over May. RURAL PROPERTY MARKET There has been a slight slowing in activity in the rural property market in recent months as farmers in many regions have focused on getting through the drought. Total farm turnover dropped by 7 percent in the three months to April, with softness evident across all land types apart from arable. Average prices have been more resilient with most land types showing stability within recent ranges. KEY COMMODITIES AND FINANCIAL MARKET VARIABLES The drop in the NZD in May has delivered some relief to farm-gate returns. While our new forecasts have NZD/USD falling to 0.75 by the end of 2014, it is likely to remain above 0.80 for much of 2013. ECONOMIC BACKDROP The economic outlook has a reasonably solid look to it, though there is likely to be ongoing quarterly volatility and disparate rates of sector performance. We’ve pencilled in 2.4 percent growth this year and 3.0 percent the year after. BORROWING STRATEGY Indicative rural lending rates are up slightly since our last edition. While there has been no change to the OCR, or a material change in OCR expectations, the point-to-point comparison does mask what has been a period of significant volatility. With OCR cuts off the agenda, and rates still low by historic standards, it makes sense to slowly increase fixed cover. EDUCATION CORNER: CAPTURING OPPORUNITY – IRRIGATION INFRASTRUCTURE PROGRESS In this month’s Education Corner we turn our attention to irrigation schemes and their current state of progress. We find that New Zealand’s irrigable land has increased by 17 percent over the last five years to 721,700 hectares. There are currently plans in place for 16 new water storage and irrigation schemes around the country. In aggregate these schemes are expected to increase the total irrigable land by a further 655,000 hectares. On completion this would nearly double New Zealand’s total area under irrigation versus current levels and mean nearly two-thirds of irrigable land has access to water.
ANZ Agri Focus / June 2013 / 2 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 AGRICULTURAL PRICE PREVIEW FOR 2013-14 June Year End
2010-11
2011-12
2012-13p
2013-14f
% change
7.0
6.5
6.0
6.3
+5%
Finance Weighted Rural Interest Rate
Dairy ($ per kilogram of milksolid) after retentions Fonterra Milk Price
7.60
6.08
5.90
6.80
+15%
Dividend per share after retentions
0.30
0.32
0.32
0.35
+9%
Tatua
8.10
7.50
6.40
7.45
+16%
Westland
7.70
6.04
5.85
6.80
+16%
Open Country Dairy
7.56
6.18
5.78
6.75
+17%
Synlait
7.76
6.22
5.80
6.80
+17%
13.2
11.3
11.5
+2.5%
Wool ($ per kilogram greasy, whole of clip net of costs) Fine (31 micron)
3.80
4.15
2.90
3.05
+5%
Sheep ($ per head, weighted averages, GST exclusive and net levies at farm gate) Lamb (17.5 kg carcass) Mutton (24.5 kg carcass) Stores (LW 30-35 kg)
105
119
89
95
+7%
86
91
65
72
+10%
75-100
80-110
40-60
60-75
+35%
Beef ($ per kilogram of carcass weight, weighted averages, GST exclusive and net levies at farm gate) Steer (296-320 kg carcass)
4.00
3.95
3.80
4.00
+5%
Heifer (195-220 kg carcass)
3.90
3.90
3.75
3.95
+5%
Bull (296-320 kg carcass)
3.80
3.85
3.75
3.95
+5%
M Cow (160-195 kg carcass)
2.90
2.85
2.80
2.95
+5%
Deer ($ per kilogram of carcass weight, weighted averages, GST exclusive and net levies at farm gate) Stag (60 kg carcass)
7.35
7.75
6.70
7.20
+7.5%
Hind (50 kg carcass)
7.20
7.65
6.60
7.10
+7.5%
88
86
90
90
Unchanged
Velvet ($ per kg)
Grains ($ per tonne, Agrifax prices grower bids delivered nearest store or mill, net levies and freight to this point) Milling Wheat
355 to 460
400 to 450
400 to 430
380 to 420
-4%
Feed Wheat
295 to 330
350 to 455
350 to 380
320 to 400
-1%
Feed Barley
290 to 340
340 to 450
340 to 380
310 to 390
-3%
Kiwifruit ($ per tray OGR) TM
Green
4.21
3.80
4.62
4.40
-5%
TM
Gold
8.89
7.66
10.45
10.80
+3%
18.04
20.10
21.00
+4%
Zespri Zespri
Apples (Weighted FAS returns $ per TCE) Braeburn
18.25
Royal Gala
22.90
20.37
21.10
23.00
+9%
Fuji
25.71
20.95
25.52
25.50
Unchanged
Jazz
21.59
18.97
22.33
23.50
+5%
Pacific Rose
30.72
28.01
30.07
32.50
+6%
NZ Average
22.22
20.47
22.00
23.00
+5% +22%
TM
Grapes ($ per tonne, national average, % change from harvest 2012 to 2013) Sauvignon Blanc
1,151
1,231
1,500
1,500
Merlot
1,517
1,510
1,600
1,600
+6%
Pinot Noir
2,439
2,754
2,800
2,800
+2%
Chardonnay Mendoza
1,014
1,089
1,350
1,350
+24%
Chardonnay Other
1,122
1,177
1,400
1,400
+19%
Pinot Gris
1,306
1,239
1,500
1,500
+21%
ANZ Agri Focus / June 2013 / 3 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 SUMMARY Just about all New Zealand’s main soft commodities are set to show some improvement at the farm-gate in 2013-14. Often the main driver is supply reductions from weather related events either domestically, or abroad. But changing trade patterns from increased demand in Asia and other non-traditional markets continues to be important also. In recent months NZ’s soft commodity basket measure of in-market prices jumped 21 percent courtesy of turbo-charged dairy prices. The question is where to now? Key international soft commodity prices are awaiting the main Northern Hemisphere planting and growing season for direction. All indicators at this stage point toward a large increase in the growing area of key foodstuffs such as corn, wheat and soybeans. If normal weather patterns occur during the growing season, then crop yields are likely to return to trend, and combined with the increase in area planted it is anticipated some very large crops will be delivered at harvest time. Such a scenario will place downward pressure on global soft commodity prices later in the year. However, the downside is limited somewhat by low inventory levels, improving demand and a slow start to planting in the US. For NZ’s main soft commodities this will provide some downward pressure on in-market prices through two channels. One will be an improvement in the price competitiveness of substitute products, i.e. soy for dairy. The other will be an improvement in margins for livestock producers (dairy, beef and other meat proteins, for example) that use feed-based systems. This will boost their yields, production, and exports in 2014. So while in-market prices are expected to settle at the top of recent cycle highs for the first half of the 2013-14 season, price pressure is expected to emerge heading into 2014. While the broad-based nature of farm-gate increases looks positive, in many cases the forecast improvements are only modest and follow declines in 2012-13. Higher prices are also required to help with the financial recovery from this year’s drought in many regions. •
Movements in dairy prices are likely to remain volatile in 2013-14 as they adjust down from recent increases. Overall, international dairy prices are expected to average above recent cycle highs until 2014 when a supply response from improved margins is expected from the major exporting countries. At this stage we expect Fonterra’s milk price for 2013-14 will be around the $6.80 per MS mark, with positive upside.
•
A modest improvement in lamb prices to $95 per head season average (17.5 kg carcass) is expected in 2013-14. This is driven by lamb’s price competitiveness with other proteins in Europe improving, driving higher consumption, a smaller hangover of frozen inventory, and tighter supply.
•
On balance, a slow grind higher in farm-gate beef prices are expected in 2013-14. Positive drivers include constrained beef production in our main market – the US, increasing demand from nontraditional markets in North and South East Asia, and the NZD appearing to have peaked. Offsetting these factors to some degree are stretched retail and wholesale prices in many traditional markets.
•
Tighter supply of crossbred wool from the major exporters, a slight pick-up in US demand for carpets, continued growth in domestic Chinese demand, and stable substitute fibre prices are expected to outweigh weakness in demand elsewhere in 2013-14. This will support a slight improvement in crossbred wool farm-gate returns.
•
Domestic grain prices are expected to remain stable, or even increase, over the first half of the 2013-14 season depending on pasture conditions. While total grain production estimates for this year’s harvest have been in line with last year, extra demand for feed grains is anticipated from the livestock sector this winter/spring.
•
A slight improvement in farm-gate venison prices in 2013-14 is expected. The direction of NZD/EUR will have the largest bearing, with every 1-cent movement worth about $0.20 per kg.
•
Apple prices are expected to lift by $1-2 per TCE (and possibly more) for this year’s harvest. Overall restricted supply from other Southern Hemisphere producers and within Europe, combined with a high quality crop more aligned to Asian markets are expected to bring about higher international pricing and premiums.
•
Sauvignon Blanc grape prices are expected to be between $1,400 and $1,750 per tonne, with a national average around $1,500 per tonne. Wine prices are forecast to increase courtesy of a stabilisation in bulk exports and better prices. Packaged wine prices are expected to be stable as the ability to pass on higher prices in the main markets will remain constrained.
•
In-market pricing for both Green and Gold kiwifruit is expect to be strong in 2013-14 as supply will be less than previously anticipated. Offsetting this will be a negative NZD impact as hedging cover rolls off, and the fact that the drought resulted in smaller, albeit better-tasting fruit.
.
ANZ Agri Focus / June 2013 / 4 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 DAIRY GLOBAL SUPPLY The main driver of the change in the dairy price cycle has once again been a change in supply growth from the major dairy exporters. The chart below shows the softness in growth has been broad based over the last several months. Milk production growth for major exporters 000 tonnes 1500
incentive to expand production. Milk prices have marginally improved, averaging 15 percent higher since mid 2012 compared with the first half of the 2012 calendar year. Changes in supply growth from the main exporters will continue to be an important driver of the price cycle. As the chart below shows, it has had a large influence, being one of the main drivers in three out of the last four changes in the price cycle for the weighted average price achieved for product sold by Fonterra on the GlobalDairyTrade. Milk production growth vs GDT price changes % change y/y
1000
% change y/y
-1% 100%
Main exporter production change rolling 4 months (adv 2 mths, LHS)
0%
500
1%
80% 60%
0
40%
2%
-500 Southern Hemisphere -1000 Sep-10
20%
3%
Northern Hemisphere
0% 4%
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sources: ANZ, Dairy Australia, DCANZ, CLAL, Datum, USDA
For the first eight months of the 2012-13 season New Zealand’s milk production grew 6.5 percent, which helped plug the gap from lower European production and little growth in US and Australian production. Since then dry conditions in the major dairying regions of both Australia and New Zealand severely affected production from February through to the end of the season. In New Zealand we estimate production will have been reduced by 20 percent y/y over this period – although comparisons with last season can be misleading as 2012 featured a very good autumn. A similar situation has transpired in Australia: year-to-date production was positive for the first half of 2012-13, but since January has slid nearly 8 percent y/y. Dry conditions in the Gippsland region have dragged down milk production in the important dairy exporting region of Victoria. Milk production in the main European dairying nations has been lacklustre this year, due to poor weather conditions and a high price of feed. Farmgate milk prices have only just started to lift as they respond to higher international prices, although there is a wide variation between processors and country. Typically farm-gate prices reduce over the peak of the season from February through to May. Still, despite the higher prices, margins have remained tight. A similar situation has existed in the US, where high feed costs across the board for corn, soymeal and alfalfa (lucerne) hay reduced margins and the
5% 6% Jan-09
-20%
GDT price rolling 4 mth change (RHS)
-40% -60%
Jan-10
Jan-11
Jan-12
Jan-13
Sources: ANZ, Dairy Australia, DCANZ, CLAL, Datum, USDA
The outlook for supply growth from the big four (NZ, Europe, US and Australia) over the next six months still looks constrained. Drought impacts are likely to linger in the first half of the 2013-14 New Zealand season. US and European production is likely to continue to be constrained by thin margins and the quality (end of season) and price of key grains. In addition, while grain prices are dropping they are likely to remain volatile until key producers and crops have been harvested later in the year. However, beyond this, as higher international dairy prices continue to filter through to the farm-gate and lower grain prices in the Northern Hemisphere take hold, production growth in excess of the six year average of 1.8 percent is likely to reemerge. Slow milk production growth in the Northern Hemisphere over the next 6 months is predicted by the fact that the US milk to feed price ratio for dairy producers is currently sitting at a level consistent with just 0-0.5 percent growth (see chart). This is despite an improvement in the farm-gate milk price and corn prices dropping by nearly 10 percent over the last two months versus the average over the past year. So while prices of key feeds are expected to continue to decline, a milk to feed price ratio of in excess of 2.25 would be required to evoke
ANZ Agri Focus / June 2013 / 5 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14
1.6
1.0 0.8 0.6
3%
0.4
2.5
2%
0.2
2.0
1%
1.5
0%
0.5 0.0 Jan-00
-1%
US supply growth (6 mth rolling average, RHS)
Jan-04
Jan-06
Jan-08
2012/13
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
1996/97
1994/95
1992/93
1990/91
1988/89
1986/87
1984/85
1974/75
Sources: ANZ, Dairy NZ, LIC
-2% -3%
Jan-02
0.0 1982/82
4%
Growth from extra dairy cows
1.2
1980/81
Supply growth 5%
3.0
1.0
Growth from MS produced
1976/77
Milk-feed price ratio (adv 6 mths, LHS)
3.5
Drivers of growth for NZ dairy production MS production (billion) 1.8
1.4
US supply growth vs. price margin signal Milk-feed ratio 4.0
5 kgs of MS per cow would need to be produced per cow. This is very possible, but it will depend how weather and seasonal conditions evolve.
1978/79
stronger production from US dairy farmers. This is nearly 50 percent above its current level. This requires both a higher farm-gate milk price and lower feed prices, as current consensus forecasts are for only an approximate 20 percent drop in the likes of the corn price (which makes up the majority of feed costs in this measure).
Jan-10
Jan-12
Sources: ANZ, USDA
How the worst-affected drought regions in New Zealand recover over the winter and early spring will also be critical to global export supply and the price cycle for the 2013-14 season. On the one hand, there has been a structural shift in the ability to feed cows supplements over the last 10 years, which should allow more cows this winter to come up to an adequate milking condition for next year. However, there will also be effects on young stock’s longerterm milking capability, continued impaired pasture performance until all regrassing has taken place, and lower stocking rates, as at least an extra 150,000200,000 dairy cows (approximately 2-3 percent of total dairy cows milked at peak) have been turnedoff for slaughter compared with last year. Combined, these factors will be a drag on productivity in the first half of the 2013-14 season and possibly beyond. Examining industry forecasts for peak dairy cows to be milked next year and accounting for the extra slaughter implies cow numbers could be back 0.7 percent this coming spring. Combined with trend yields of 345 kgs MS per cow, this implies milk production growth of just 0.4 percent for the 2013-14 season. Trend growth in milk production is a reasonable assumption, as despite the drought in the second half of 2012-13, national average yields are assessed to have only fallen back to trend after the bumper 2011-12 season – with the South Island offsetting the North. For New Zealand to reach the global average growth in milk production from the last six years of 1.8 percent, an additional
EXPORT DEMAND On the export demand side the picture remains similar to our last update. Over the past three years global dairy exports have grown by more than 7 percent per year to reach almost 13.2 million tonnes. New Zealand exports have shown similar growth, although it has been more variable as it is influenced by seasonal patterns. Fifteen countries (including seven EU member states) account for almost 84 percent of global dairy exports, though only 33 percent of global milk production. Despite slowing milk production growth in a number of the top 15 exporting countries (as noted above), 10 of the top 15 continue to show strong export growth. Top Exporters of Dairy Products in 2012 New Zealand United States Belarus Netherlands Germany France Australia Argentina Uruguay Belgium Switzerland Poland Ireland Denmark Ukraine ROW 0.0 Sources: ANZ, Fonterra
0.5
1.0
1.5
2.0 2.5 3.0 Product (million tonnes)
The flow of New Zealand’s dairy exports continues to be towards higher-growth countries and regions. The strong finish to last season and good first eight months in the 2012-13
ANZ Agri Focus / June 2013 / 6 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 season have seen a 15 percent y/y increase (393,000 1 tonnes) in total exports for the 12 months ended April. The vast majority (77 percent) of this increase has been in the form of milk powder to China and the North Africa/Middle East region. Indeed, total powder exports to China have increased 64 percent y/y for the 12 months ended April. This has accounted for nearly 70 percent of the increase in total dairy exports over this period. NZ's Monthly Milk Powder Exports to China Tonnes 100,000 90,000
2010
2011
2012
2013
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan Feb Mar Apr May Jun
Jul
Aug Sep Oct Nov Dec
Includes WMP, SMP Sources: ANZ, Global Trade Atlas
This growth in milk powder exports to China is being fuelled by: 1. Preferential market access, via exclusive free trade agreements. 2. Demand for safe, high-quality dairy products, which New Zealand has a good reputation for producing. 3. Population growth. 4. More Westernised diets, fuelled by the modernisation of the food supply chain and increasing presence of modern retail outlets and quick service chains. 5. All these factors being energized by rising income levels and urbanisation. For New Zealand the main competition to watch is European whole milk powder production, and general US exports. A decade ago the EU exported nearly as much WMP as New Zealand did, but EU exports of WMP have dropped away whilst New Zealand exports have skyrocketed. In the 12 month period ended April the EU has supplied world markets with only about one quarter of the volume that New Zealand has. The EU does have sufficient processing capacity to increase the volumes of WMP that they manufacture, but in 1
Analysis includes whole milk powder, skim milk powder, anhydrous milkfat, butter, cheese and whey products.
the short term volumes are not expected to increase significantly. This is because the EU firstly needs to supply its own domestic market, which typically provides greater returns than export markets do. In addition due to its limited shelf life, the manufacture of WMP is a riskier option. US exports need to be watched as they generally compete more directly in New Zealand’s main Asian markets, and they have extra product in stock at present. In the 12 1 month period ended March total US dairy exports increased by 14 percent, or 168,500 tonnes. Nearly two thirds of this increase was skim milk powder and whey products. In the short term the US has limited ability to increase WMP exports, but is expected to continue to pick up market share for skim milk powder. This is due to stronger production and stock levels, which have increased over the first half of 2013. New Zealand product is currently receiving a significant premium over other suppliers. This is expected to close due to increased competition from the US and other exporters in the top 10. However, some premium will be retained as buyers often have different product specifications, there are differences in perceived quality, and not all buyers are willing or able to buy from all suppliers. So despite plenty of companies from various countries supplying skim milk powder to the global markets, some buyers are restricted, particularly in the shorter term, to buying from certain suppliers. Overall, the major increase in trade flows is from temperate Southern and Northern Hemisphere regions to equatorial regions of the world. These trends are expected to continue, and while demand for some dairy products is expected to weaken in 2013-14 in developed economies, particularly Europe, import demand from Asia, North Africa and the Middle East is expected to remain relatively firm. Over a five-year time horizon there are varying forecasts for the growth in global dairy demand. However, it is clear that when you compare the current levels of milk and dairy consumption in our main Asian, North American and Middle East growth markets with Western society there is plenty of potential upside to per capita consumption. With a large proportion of the world’s population and economic growth residing in these regions, there is little doubt about demand upside. While a large proportion of this is expected to be supplied by domestic production growth within these regions, the overall growth will also fuel increased importing activity. However, any price increases need to be affordable. Given 30 to 50 percent of disposable
ANZ Agri Focus / June 2013 / 7 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 income is currently spent on food, the rate of price increases cannot be too far out of whack with wage growth in these countries. Milk and dairy product consumption kg per capita 300 250 200 150
inventory levels are expected as many buyers are currently utilising existing stocks, which would have been secured at lower prices than those achieved from March through to May. But at some stage the supply pipeline will have to be replenished. This is expected to start occurring when seasonal supply lifts in New Zealand. Overall demand appears to be quite resilient to the high prices, but previous cycles have shown consumer resistance increases in some of New Zealand’s main end markets when prices for powder push through the US$4,000 per tonne mark. Dairy Products - Oceania Export Market Prices
100
USD per tonne Anhydrous milkfat
6,500
50
Forecast
5,500
0 North America
Europe
Sources: ANZ, OECD
Latin America
Asia and Pacific
North Africa
Least developed countries
Skim Milk Powder 4,500 Whole Milk Powder 3,500
GLOBAL PRICES Movements in dairy prices are likely to remain volatile in 2013-14 as they adjust down from the recent upward surge that started in March. Three key areas to watch are end demand, the supply response from Northern Hemisphere producers, and the price of substitutes (such as soybeans). Commodity price movements are influenced by cyclical (temporary) and structural (i.e. supply and demand) factors. Dairy is no different. A key temporary factor that has supported dairy prices over the last several months has been the dry conditions in the second half of the 2012-13 dairy season in both New Zealand and Australia. Tight margins and adverse weather have also constrained the supply response from key Northern Hemisphere competitors. When supplies are tight in New Zealand we typically see the greatest price movements for the commodities for which New Zealand dominates global supply i.e. whole milk powder (WMP) and anhydrous milkfat (AMF). This has occurred over the last several months, with these products leading other markets and product prices higher (both skim milk powder and other milkfat products). However, these somewhat temporary factors are forecast to subside by early 2014. That said, the global prices for the basket of dairy commodities that are used to determine the milk price are expected to settle at the top of recent cycles over the first half of the 2013-14 season. This is due to structurally higher demand, higher cost of production parameters for key exporters, and low inventory levels from hand-to-mouth purchasing until seasonal production in New Zealand once again lifts. Low
2,500 BMP 1,500 500 Jul-04
Butter
Jul-06
Jul-08
Weighted Basket
Jul-10
Jul-12
Jul-14
Sources: ANZ, GlobalDairyTrade, USDA
Using several statistical methods to analyse Fonterra’s notional basket of dairy products, the following can be concluded: 1. The average price trend for Fonterra’s notional basket has been US$3,300 per tonne since 2006. 2. The cycle around the trend has doubled since 2006 compared with prior periods, i.e. the volatility in dairy prices has increased. This will be to the benefit of dairy farmers in the 2013 calendar year. 3. On the upside the peak above the average trend price has been 20 percent, which implies price upside to US$3,960 per tonne would be typical from here. Using this analysis and other market information suggests prices for the first half of the 2013-14 season will remain above recent cycle highs in the $4,100-$4,400 per tonne range for the main dairy products. In early 2014 a larger supply response from Northern Hemisphere producers is expected to provide a second step-down in prices, potentially to below recent cycle highs of US$3,960 per tonne. Next season could be one of two halves.
ANZ Agri Focus / June 2013 / 8 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 BUDGETING PRICES BUDGETING MILK PRICES
Basket of NZ Dairy Products
Fonterra Milk Price Component Scenarios (NZ$ per kg MS) NZD/USD USD
0.78
0.79
0.80
0.81
0.82
3400
5.98
5.90
5.83
5.76
5.69
3500
6.16
6.08
6.00
5.93
5.85
3600
6.33
6.25
6.17
6.10
6.02
3700
6.51
6.42
6.34
6.27
6.19
3800
6.68
6.60
6.52
6.44
6.36
3900
6.86
6.77
6.69
6.60
6.52
3950
6.95
6.86
6.77
6.69
6.61
4000
7.03
6.95
6.86
6.77
6.69
4100
7.21
7.12
7.03
6.94
6.86
Sources: ANZ
As high prices are expected to occur during the peak of production in 2013-14 this will lift the season average price. Combined with our view of the currency having peaked but staying elevated, our forecast for 2013-14 is a weighted average international price of US$3,950 per tonne and an effective currency exchange rate of NZD/USD 0.80. This gives a milk price forecast of somewhere around the $6.80 per kg MS mark, with positive upside. If you take into account current spot international prices and currency then a much higher milk price of $77.50 per kg MS could be achieved. However, we have built in an assumption that average international prices will weaken by 15 percent over the course of the season. The other independent milk processors’ historical performance versus Fonterra has been used to derive their outlooks. However, caution should be exercised as results in recent years have diverged more than in the past. In part this reflects the volatility in international dairy product prices and other financial variables. Negotiations for new season production have been underway and some buyer resistance is being reported. Taken with the wide variation in current pricing between suppliers on GDT this suggests there could be a wider than normal range for forward contracted product and average pricing achieved for the year. In addition, the divergence also reflects many of the independent companies beginning to execute their own individual business strategies, which are focused on different markets and products to one another.
Beyond next season prices are expected to return to the middle of recent ranges, averaging US$3,500 per tonne in 2014-15. Combined with the NZD slowly depreciating back to fair value levels this gives a milk price forecast of around the early to mid $6 per kg MS mark. BEEF The outlook for beef prices continues to look solid in 2013-14. Positive drivers include constrained beef production in our main market, the US, increasing demand from non-traditional markets in North and South East Asia, and the NZD having peaked. Offsetting these factors to some degree are stretched retail and wholesale prices in many key markets. A further substantial push higher is likely to prove difficult to achieve, given that consumption growth in many of our traditional markets is under pressure due to a range of issues. Meat processor margins are also expected to stay healthy, and competition from several key competing exporters is on the rise. On balance, these factors suggest a slow grind higher in farm-gate prices, as opposed to spectacular rises. SUPPLY Historically high US manufacturing beef prices remain the major support factor for farmgate prices in New Zealand. These are expected to remain supportive as total US beef and veal production is forecast to drop by nearly 3 percent in 2013, following a 3 percent drop in last year’s calf crop. A further 4 percent drop is forecast the year after as some herd rebuilding takes place. To put this in context, the average annual decline of 391,000 tonnes (carcass weight) is equivalent to nearly 70 percent of New Zealand’s forecast total annual production in 2012-13. The decline would be the largest since the identification of BSE in 2003. Calf crop and US beef production 000 head
Million pounds 28,000
46,000 Beef production (RHS)
27,000
44,000
26,000
42,000 40,000
USDA est. -3% in 2013 -4% in 2014
38,000 36,000 34,000
24,000 23,000
Calf crop (LHS) 2012 -2.9%
32,000 1980 1984 1988 1992 1996 2000 2004 2008 2012 Sources: ANZ, USDA
25,000
22,000 21,000 20,000
ANZ Agri Focus / June 2013 / 9 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 Ongoing dry conditions and poor profitability have also continued to artificially boost the production of US manufacturing beef as breeding stock are turned off. While only slightly above the 5-year average, US cow production has been higher than expectations over the last 12-18 months. When the weather and available feed eventually improves, which is expected to be the second half of 2013, beef producers are expected to switch into herdrebuilding mode. It is at this point that cow slaughter will slow and manufacturing prices are expected to post new records. However, there has been a lift in US imports from Australia and South America over the last 12 months. This competition is likely to persist and grow as we move into 2014. The Australian cattle herd is now the largest in over 30 years, and after more than two years of herd rebuilding and drought in certain regions, supplies of cattle suitable for slaughter have risen quickly. Brazil’s strong expansion of its cattle herd – growing at 4 percent since 2007 – has limited a rebound in production so far, and domestic consumption has grown by over 1kg per person over the last two years, further restricting exportable supplies. In 2013, Brazilian exports are expected to rise, but be still only a third of the peak seen in 2007. The additional exports are expected to head to their traditional markets, but some of the extra product is likely to continue to find its way to the US and Asian markets. Overall US beef imports in 2013 are expected to be similar to 2012, but are forecast to increase 10 percent in 2014. This would be the largest beef import volume since 2007. y/y change in US imports
DEMAND On the demand side, US per capita beef consumption is expected to continue to march lower after showing signs of stability in 2012. Lower beef availability will be an influential factor, but so will consumer affordability, beef’s price competitiveness compared with alternative proteins, and ongoing consumer jitters after several highprofile food safety and quality issues in 2012. The downturn in overall US beef consumption since 2008 has been sharp, but has been driven by a drop in the consumption of table/ prime cuts, as opposed to secondary cuts and manufacturing beef. This means New Zealand exports of manufacturing beef have not seen the same 14 percent reduction in per capita demand. The drop in the consumption of table/prime cuts has been a result of consumers trading down to lower-value beef cuts or alternative proteins, and eating out less at upper-end restaurants. As the US economy slowly improves these pressures are expected to subside somewhat, but competition from other proteins is expected to remain fierce and build into 2014. This is due to an expectation of lower grain prices, and competing proteins’ ability to increase production more quickly in response to better margins. Another pressure on beef consumption has been consumer jitters after several high-profile food safety and quality issues in 2012. These included another outbreak of BSE, US media attention on Lean Finely Textured Beef, and E.coli food safety testing standards. In general, while consumers will remain nervous regarding such issues, they seem to have taken these latest developments in their stride. US Beef Consumption
Argentina lbs per capita
Canada
100
Nicaragua Other
95
Total 90
New Zealand Australia
85
Brazil Uruguay
80
Mexico -100%
-75%
Sources: ANZ, USDA
-50%
-25%
0%
25%
50%
% change y/y
75 70 90
92
94
Sources: ANZ, USDA
96
98
00
02
04
06
08
10
12
14
ANZ Agri Focus / June 2013 / 10 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 Turning to the Japanese market, imports of New Zealand beef are expected to fall as a result of stagnant per capita beef consumption, more attractive export markets elsewhere, increasing competition from US and South American beef, and the Japanese Government’s current policy to reduce the yen to strengthen exports. The major events for the Japanese market have been policy-driven: the decision to target higher inflation, which is likely to further weaken the yen, and the decision to allow imports of US beef from cattle less than 31 months of age from February 2013. While the change of age for cattle greatly enhances the US supply capability to Japan, it is expected to have a medium-term impact, as opposed to leading to a sudden surge of exports in 2013. Tight supplies, current high production costs, additional supply heading to more lucrative markets, and the weaker yen are all expected to lead to a more gradual increase in competition for New Zealand exports. In Japan, foodservice and fast food demand is expected to be positive for frozen beef. However, demand for chilled product is expected to remain fickle. Japan’s ability to secure in-demand secondary cuts – which make up the majority of our exports to Japan – will be influenced by demand from smaller non-traditional markets in North and South-East Asia. Many of the markets that make up South-East Asia (excluding Indonesia) have been taking near record levels of NZ beef exports. While each market has its own particular features and drivers, the overall increase in exports to the region is supported by growing incomes and populations and a tight supply of product from other countries (mostly at higher prices). Looking at other more traditional Asian markets, Indonesia and Korea are expected to remain tough, but Taiwan should be stable. The Indonesian Government continues to limit the allocation of import permits despite domestic price pressures. This has triggered a large decline in New Zealand shipments. In Korea, local production is on the rise and competition from the US will remain stiff as they now have a Free Trade Agreement with lower tariff rates. Domestically, anecdotal evidence suggests beef consumption has improved due to a better summer after last year’s poor showing (more barbecues!), and as consumer confidence and spending on food has lifted. However, overall consumption is expected to remain relatively stable.
year. This was softer than expected due to the continued strength in the NZD and the drought causing a larger than expected turn-off in cull cows. A return to more normal weather patterns both here and abroad is expected to support higher in-market beef prices in 201314. Combined with increasing demand from nontraditional markets in North and South East Asia, and the NZD having peaked, this is expected to lift farm-gate schedule prices by 5 percent on average in 2013-14. A substantial push higher for in-market prices is likely to prove difficult to achieve, given that consumption growth in many of our traditional markets is under pressure due to a range of issues and competition from several key competing exporters is on the rise. Meat processor margins are also expected to stay healthy despite the potential for some recoil in domestic production as regions recover from the drought. On balance, these factors suggest a slow grind higher in farm-gate prices, as opposed to spectacular rises. LAMB SUPPLY The potential for upside in wholesale lamb prices, which will filter through to the farm-gate, will be predominantly driven by constrained supply in export markets and in Europe. New Zealand supply While it is too early to know the exact effects of widespread dry conditions on this spring’s lamb crop, it is expected to be substantial enough to have implications for pricing. The effects will come through several channels. NZ lamb slaughter m head 4.0
Three large months back-to-back
South Island 3.5
North Island
3.0 2.5 2.0 1.5 1.0 0.5
BUDGETING BEEF PRICES Provisional farm-gate returns for beef softened by 2.5 percent in 2012-13 compared with last
0.0 Oct-08
Oct-09
Sources: ANZ, Beef + Lamb NZ
Oct-10
Oct-11
Oct-12
ANZ Agri Focus / June 2013 / 11 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 Earlier industry forecasts had been for a 6 percent increase in export lamb production to 20 million head in 2012-13, because of better lambing and fewer ewe hogget retentions. As the dry conditions have subsided, so has the weekly slaughter, and it now looks like a lot of this year’s lamb production has been brought forward due to the dry conditions, as opposed to a substantial cut into ewe hogget numbers. However, due to lambs being turnedoff earlier, average weights are expected to be back 0.75 kilograms. This means annual production will be only slightly above recent years. Anecdotal evidence suggests that the drop in weekly slaughter, China purchasing much of the extra lamb production from January to March, and clearance of most of the expensive inventory from 2011-12 has start to prompted some traditional buyers in Europe back into action recently. This suggests prices for the main cuts have bottomed at least. How restricted supply might become in 201314 will depend on the final number of breeding ewes culled due to the drought, and its effects on lambing percentages. The weather during lambing and rest of the season will also be important. Earlier industry forecasts had been for an 8 percent lift in this year’s mutton slaughter. Currently national mutton slaughter is running over 20 percent ahead of last year, but there is a stark contrast between the two islands, with the increase nearly entirely driven by the North Island. While the weekly pace has slowed in May, many key northern sheep-producing regions remain short of grass. Therefore, these figures imply an extra 300,000 to 500,000 breeding ewes in the North Island will be culled because of this year’s drought. Combined with a higher number of dry ewes, lower sets of multiples, and less ewe hoggets being mated because they will be below target weight for breeding, this suggests next season’s lamb crop could be anywhere from 1-1.5 million head less, or 5 to 8 percent less than the three year average. Such a result means next season’s lamb production has a high likelihood of being below the recent lows of 201011. Of course the weather during lambing and the remainder of the season will have a large influence on the size of the final lamb crop (lamb survivability) and weights.
forecasting lamb production to fall by 3 percent following higher-than-expected turn-off in the season before. It seems likely a small rise might occur at this stage as dry conditions in some regions and lower farm-gate returns mean fewer ewe lambs are retained. What does seem to be clear though is the near-10 percent increase in production in 2012 will not be repeated. This, combined with lower supply from New Zealand, should reduce tradable supply in the 2013-14 New Zealand season. This should help tighten supply and improve prices in markets outside Europe, where Australian and New Zealand product traditionally compete. Over the next several years a larger Australian sheep flock and change in genetics are forecast to result in production rising to around 21.5 million head, up nearly 10 percent on current levels. The continual focus on prime lamb production is expected to result in higher lambing rates, reflecting more twins from sheep meat breeds than pure merino. Most of the increase in production is destined for export to Australia’s high-growth markets in the Middle East and Asia. European supply Indications from the latest EU Commission sheep forecasting group indicate a clear divide between the sheep sectors in continental Europe and those in the UK and Ireland. However, overall aggregate supply is expected to be relatively stable in 2013. Current projections indicate that while both the UK and Irish flocks are growing, the main flocks on the continent are continuing to decline. This is mainly the result of different production systems, with grass-based systems in the UK and Ireland faring better than the more expensive grain-reliant systems more prevalent on the continent.
Australian supply
In 10 of the EU-15 countries that have published results, sheep flock numbers at the start of their season show a 1 percent decrease, but the breeding flock is estimated to be down as much as 4 percent due to a sharp reduction in Spain and Italy. The smaller flock and breeding numbers seem to be the result of higher grain prices making lamb finishing uneconomic, and farmers shifting to grain production. This means production in 2014 is likely to be reduced due to both fewer lamb hogget retentions and a smaller breeding flock.
Forecasts differ on whether Australian lamb production will slightly increase, or decrease over the coming 12 months. Meat and Livestock Australia are forecasting total production to increase by just over 1 percent in both 2013 and 2014, with exports expected to grow at a slightly faster clip of around 2.5 percent y/y. However, ABARE are
The UK is by far the largest lamb producer, accounting for nearly 40 percent of EU-15 output. The 2013 UK lamb crop has recently been revised down to 15.8 million head, which is some 1.4 million head (8 percent) lower than the year before. This is due to poor weather conditions during lambing reducing the number
ANZ Agri Focus / June 2013 / 12 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 of lambs tailed. Lamb production for 2013 is still forecast to increase by 3 percent, due to a higher number of old season lambs carried over from the previous season still needing to be processed. Beyond this, however, production is expected to start to fall quite sharply from the third quarter of 2013 through to the second quarter of 2014. DEMAND The most important export destinations for NZ lamb continue to be the quota markets of Europe. The UK and continental European countries made up 54 percent of returns in 2011-12. However, this was back 4 percentage points on 2010-11 as other markets have proven to be more attractive. On a volume basis, the European markets made up 42 percent of total exports in 2011-12, underlining the high-value mix of cuts sold there compared with other markets. However, this was also 6 percentage points back on the previous year, highlighting that the relative fall in the value of lamb in Europe has been greater than elsewhere. Export lamb volumes by country Shipped tonnes 60,000 2011-12
50,000
2012-13p to April 40,000
The seismic shift in NZ lamb markets over the last 12 months has been the continued rapid rise in exports of lower-value cuts to China. China is now more important than the likes of the US market for total export earnings despite the price per tonne being only 40 percent of the US price. Its importance is due to the volume of product it is now taking, accounting for nearly 27 percent of NZ’s total lamb exports by volume (not value) in the 12 months ended April. Its rapid rise has seen it recently surpass Great Britain as our largest market by volume, and it is taking two and a half times the volume of our next three biggest European markets combined (France, Germany and Belgium). Nevertheless, the restaurant trade into North America, particularly the US, continues to be important for higher value cuts. These accounted for only 9 percent of New Zealand’s total exports by volume in 2011-12, but 14 percent of total returns. As a single market the US continues to be the most important within North America, delivering an average export price of $16,100 per tonne in 2011-12. This was three and half times more than the average export price to China of $4,650 per tonne. Since the start of the 2012-13 season this gap has narrowed somewhat though, with prices for high value cuts decreasing by 20-30 percent and lower value holding to improving. The diversity of NZ’s three main export destinations of Europe, the US and China for the different cuts of a carcass will continue to be important for intra-market competition and the ability to extract the maximum value from end markets for each of the cuts.
30,000 20,000 10,000
EUROPEAN AND UK OUTLOOK
0 Great Britain
France Germany Belgium
USA
China
Japan
Sources: ANZ, Beef + Lamb NZ
British retail meat prices Domestic and imported Average retail price, GBP per kg 9.0
Lamb (all)
8.5
Export lamb returns by country
8.0
FOB $ per tonne
Beef
7.5
2011-12
20,000
2012-13p to April
7.0 6.5 6.0
15,000
Pork
5.5 5.0 4.5
10,000
4.0
Poultry
3.5 3.0
5,000
04
05
06
07
08
09
10
11
12
Sources: ANZ, Beef + Lamb NZ, Kantar
0 Great Britain
France
Sources: ANZ, Beef + Lamb NZ
Germany
Belgium
USA
China
Japan
The prospects for prices in the bellwether markets of the UK and Europe look brighter heading into the 2013-14 season. This is
13
ANZ Agri Focus / June 2013 / 13 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 due to lamb’s price competitiveness with other proteins having improved, and holiday discounting by retailers helping lift demand and clean out excess frozen inventory from the 2011-12 season. The retail channel is the main sales channel for NZ lamb, accounting for approximately 70 percent of total sales. The recent correction in wholesale and retail prices, combined with heavy discounting by retailers during holiday periods and higher prices for other meat proteins has boosted demand in recent months. This has helped clear this year’s early kill from the drought and excess frozen stock. Retail data from the UK shows overall consumption has lifted by nearly 15 percent in the last 12 months as a result. Nearly all the cuts have shown improvement, but leg roasting joints are up 41 percent, which makes up a large proportion of NZ’s sales. Lamb consumption in UK by major cut 2010-11 Last 12 months
Ready Meals
2. Consumption in Europe and the UK improving after the dramatic falls in 2010 through to the middle of 2012. 3. Continued growth in demand for lower-value cuts and co-products from China and Middle East markets. 4. A smaller hangover of frozen inventory. 5. Tighter tradable supply and lower European production. On the back of this it is forecast the season average lamb price in 2013-14 will be around $95 per head for a 17.5 kilogram lamb. This is a season average of $5.40 per kilogram, with the shoulders of the season expected to see a schedule price somewhere around the $6 per kilogram mark. Higher prices could well materialise if NZ’s lamb crop this coming spring is dramatically lower, the NZD behaves itself, and meat processors have to pay higher procurement premiums to attract stock. Such a scenario would require all the stars to align for farmers though, and probably wouldn’t be sustainable for other supply chain partners over the longer term.
Marinade
WOOL
Mince Stewing
SUPPLY
Shoulder Roasting Joint Leg Roasting Joint Frying/Grilling Steak Frying/Grilling Chops -40
-20
Sources: ANZ, EBLEX, Kanter
0
20
40
% change in consumption
Despite these improvements, and the implementation of policy backstops by politicians and the Central Bank (ECB) to cap borrowing costs for indebted sovereigns, many economic challenges remain. Current economic growth, low consumer confidence, and high unemployment paint a sobering backdrop. Given this, lamb wholesale prices for middles and legs are forecast to show only modest improvement due to tightened supply and a smaller hangover in stocks. BUDGETING LAMB PRICES In-market lamb prices for the main higher value cuts are expected to modestly improve in 2012-13. This is due to: 1. Lamb’s price competitiveness being restored in NZ’s main European markets.
According to the International Wool Textile Organisation (IWTO), world wool production fell by 1 percent in 2011-12 to its lowest level in 70 years. The fall in wool supplies was greatest in apparel wool as growers in many countries, notably Australia, continue to shift to dual-purpose (wool and meat) breeds and meat breeds. The largest declines were seen in Argentina (down 18 percent), Uruguay (down 3 percent), and South Africa (both 2 percent). Production in Australia, the largest wool producer and exporter, fell by 1 percent. High wool prices in 2010-11 encouraged the sell-down of stocks in some countries – notably Australia. With lower stocks available and reduced production, total global wool supply fell 3 percent in 2011-12. According to the IWTO, stocks-to-use ratio is currently a low 11 percent, compared with more than 40 percent in the 1990s. Australian shorn wool production is forecast to increase by 2 percent in 2013-14 to 368,000 tonnes as a result of the increase in the number of sheep shorn and heavier fleece weights due to a slightly larger share of wethers in the flock, which are used solely to produce wool. However, the continued change in the flock to more dual-purpose (wool and meat) breeds and meat breeds means fleece weights
ANZ Agri Focus / June 2013 / 14 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 are not expected to return to the averages of the 1990s and early 2000s. On the other hand, the move toward more dual-purpose breeds has resulted in an increase in the proportion of mid and strong micron Australian wool, which competes directly with New Zealand’s wool.
000 tonnes
Wool Sales vs. Sheep Numbers (June year)
m head 60
250 Total wool sales (RHS)
225
Total sheep numbers (LHS)
200
50
40
175 150
30 125 20 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 20122013-14f
100
Sources: ANZ, Beef + Lamb NZ, Statistics NZ
In the other main wool-exporting countries supply is expected to remain under pressure in 2013-14. The drop in European sheep numbers (especially the UK lamb crop) and high grain prices/ low returns from sheep farming will no doubt suppress fleece weights and supply. In New Zealand a smaller breeding flock from the drought and the after-effects on fleece weights are expected to see a drop in production of both shorn and slip wool production. Early estimates are that total clean production could fall by 3.5 percent to 119,000 tonnes. This would be the lowest supply in many years. DEMAND As with many commodities the flow of wool exports is increasing towards China. China is the world’s largest importer and processor of raw wool, exporting around half its raw wool imports as wool yarn, fabric, and garments to the European Union, the US and Japan. The other half is processed for domestic consumption, which continues to grow. This is not just a New Zealand wool story: many other wool exporters such as Australia, Argentina, Uruguay, and South Africa have experienced the same change. North/South Asia made up 65 percent of New Zealand’s wool exports by volume and 67 percent by value in the first eight months of the 2012-13 season, and China has accounted for the lion’s share. This is a dramatic change since 2007-08, with exports to China now six times that of our next biggest market, the UK.
World raw wool demand increased during 2010 and 2011, supported by recovering economic growth in key wool-consuming countries, and increases in the cost of other substitute fibres, especially cotton. However, through 2012-13 both these factors have been unwound. The prospects for 2013-14 are decidedly mixed. European consumers remain very cautious and careful with their spending. This has resulted in weaker sales during the Northern Hemisphere’s autumn/winter period in 2012-13, which brought lower raw wool demand and subdued wool prices. A similar theme in Europe is expected in 2013-14. In Japan, while a pick-up in spending could be on the cards if the new policy paradigm is successful in raising inflation, yen weakness will negatively affect competitiveness. Of the traditional wool-consuming countries the US looks the brightest. A substantial lift in housing starts statistics and general housing buoyancy is expected to lift end demand for woollen carpets. Clothing sales don’t look so rosy though, as retail sales growth has slowed to below 4 percent y/y in early 2013, which doesn’t bode so well for the finer end of the clip. The other bright spot is the growing Chinese market. In China, rising per person incomes, and changes in consumers lifestyles and apparel preferences over the past decade have translated into increasing demand for higher quality textiles. Currently per person consumption of apparel wool products in China is low compared with other wool-consuming countries. In the mid2000s per person consumption of apparel wool in China was estimated to be 0.09 kilograms compared with 0.62 kilograms per person in Japan, 0.56 kilograms per person in Korea, and 0.69 kilograms per person in the UK. Despite domestic market demand slowing over the past year these structural trends are forecast to continue as consumption gradually takes its place as the new engine of growth. COMPETING FIBRES Textile manufacturing supports a degree of substitutability between wool, cotton, and synthetic fibres, which is highly influenced by the relative prices of the different textile fibres. Over the first nine months of 2012-13, wool fibre became more price competitive relative to polyester and cotton.
ANZ Agri Focus / June 2013 / 15 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 wool farmers have multi-year contracts in place at higher levels than those being achieved at auction. This helps underpin their returns at a higher level and gives these farmers a certain level of income protection.
Strong Wool vs. Cotton Prices USD per kg 6 5 NZ strong wool price (clean)
4
DEER
3 2
DEMAND
1
Over the last five years the deer industry has made a number of advances, including:
International cotton price 0 Jun04
Jun05
Jun06
Jun07
Jun08
Jun09
Jun10
Jun11
Jun12
Jun13
Sources: ANZ, Wool Services International, World Bank
Synthetic fibres, in particular polyester, are produced from refined petroleum, meaning their prices are responsive to changes in the world oil market. With oil prices projected to remain relatively firm, synthetic fibre prices are expected to remain around their current level in real terms. The wool-to-Cotlook ‘A’ price ratio has declined back to its long-run average of 1.65 in recent months. It peaked at 2.2 in December 2011, when cotton prices adjusted lower before wool prices did. The further improvement in the ratio back to its longrun average may lead some manufacturers to substitute back to wool. The world cotton indicator price is forecast to average around the same level in 2013-14. Lower world cotton production, as farmers shift into alternative crops that give more favourable returns, and an expected further recovery in world cotton consumption, are forecast to support cotton prices in 2013-14. However, relatively large world cotton stocks will prevent too much upward pressure on prices. Combined with the expectation of relative firm polyester prices, this relatively firm outlook for cotton prices limits further downside risk for wool prices. BUDGETING WOOL PRICES Tighter supply of crossbred wool from the major exporters, a slight pick-up in US demand for carpets, continued growth in domestic Chinese demand, and stable substitute fibre prices are expected to outweigh weakness in demand elsewhere in 2013-14. This is expected to support a slight improvement in crossbred farm gate returns to $3.05 per kilogram (greasy). End apparel demand is expected to remain more subdued, and higher Australian fine wool production is expected to result in a tougher environment for the finer end of the clip. Therefore only a small improvement in farmgate prices is expected. A number of fine/mid micron
•
Stabilising supply;
•
Improving marketing structures and partnerships with more contracted supply;
•
Building more trust between exporters and importers providing a sharing of risk; and
•
Slowly diversify markets into different food segments and products i.e. increased the proportion of product sold chilled to supermarkets.
These changes mean that venison is not as reliant as it was on the seasonal frozen game trade into Germany. This used to be a major cause of volatility in returns. However, despite the size and diversity of the venison market having increased over the past few years, 85 percent of NZ venison is still sold in euros. The higher NZD/EUR has been the main downside to farm-gate returns in 2012-13, accounting for $0.80 of the $1.05 per kg decline. The austerity measures being put in place by many European governments, increasing unemployment, and low consumer confidence could be expected to cap spending on luxury proteins, such as venison over the next several years. However, venison is now classified as a high-value niche meat, and there is increasing penetration into the upper end of foodservice as more chefs become familiar with the versatility and quality of New Zealand venison. This means venison is largely consumed by wealthy high-income consumers, and their purchasing power has not been affected to the same extent as Europe’s middle class. This has seen these consumers continue to purchase venison. Also within Europe, the main target countries for venison have performed better than many other parts of the region thus far. Overall, barring a complete meltdown in Europe, stable markets are expected.
ANZ Agri Focus / June 2013 / 16 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 SUPPLY
GRAINS NZ breeding hind numbers and production Head 000
Head 000 1000
800 700
800
600 500
600 400 200
2011-12
2008-09 2009-10
70
2010-11
200
60
2011-12
100
50
2012-13f
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
Breeding Hind (LHS)
90
300
0 2001-02
0
National crop harvest - Estimated area 000 hectares
80
400
2000-01
DOMESTIC SUPPLY
Total slaughter (RHS)
Sources: ANZ, Statistics NZ, DINZ
2012-13
40 30 20 10 0
The latest NZ census data put farmed deer at 1.06 million at 30 June 2012, down a touch from the previous year, painting a picture of a stable herd before this year’s drought. There have been reports of a stronger cull in breeding hinds due to the dry conditions, but the slaughter data showed only an extra 10,000 hinds turned-off during the February to April period compared with the year before. This suggests NZ production will finish only marginally higher than the year before and be very similar to the last couple of years, ending around the 410,000 to 420,000 mark. The higher slaughter through this period will have also cleared out a few finishing animals that in a normal year would have been carried through the winter for slaughter in August/September. While some farmers will have signed supply contracts, it could be that spot prices could head higher if companies have to compete for deer in the spring to fill peak seasonal demand. In 2013-14 a slightly smaller breeding herd is expected to see supply drop back toward the 2010-11 low of 392,000 head.
Wheat
Barley
Oats
Sources: ANZ, Foundation of Arable Research
The Foundation For Arable Research (FAR) survey of 117 grain growers throughout New Zealand has shown the total harvest of wheat, barley, and oats this summer was very similar to last year. Within this, the total tonnage of feed wheat (-7 percent) and feed barley (-4 percent) harvested in 2013 are estimated to be slightly less than last year. This reflects two factors: 1. An estimated 7 percent decrease in the area of feed wheat and a 4 percent decrease in the area of feed barley versus the previous year; and 2. Very similar average yields for wheat and barley crops (both feed and non-feed) between the 2012 and 2013 harvests (while yields in some parts of Canterbury were down on last year, other areas of the country, particularly Southland, had higher average yields than last year). Sales status of 2013 cereal crop as at April 1, 2013 Feed Oats
BUDGETING VENISON AND VELVET PRICES Again the direction of the NZD/EUR will have the largest bearing on farm-gate prices in 201314. Every 1 cent movement in the NZD/EUR is worth about $0.20/kg on the farm-gate schedule. We have forecast a lower NZD/EUR, and combined with slightly lower supply, more competition from meat companies to attract supply during the peak of the season, and stable in-market prices, a 7.5 percent improvement in the season average schedule price is expected. This is a modest $0.50/kg lift and only recovers less than a half of the $1.05/kg fall seen over the past year. Velvet prices are expected to remain stable around the three year average mark of NZ$90/kg for all weights/all grades.
Milling Oats Feed Barley Malting Barley Feed Wheat Milling Wheat 0% Sold & Delivered
20%
40%
Sold & Stored on-farm
Sources: ANZ, AIMI Grower Survey
60% Unsold
80%
100%
Still to harvest
ANZ Agri Focus / June 2013 / 17 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 The weather conditions this season meant a larger percentage of wheat and barley crops (but not oat crops) were harvested by 1 April, whereas last year significant areas of all cereals were still to be harvested at that point, because of the moist conditions. Less feed wheat (183,000 tonnes) and feed barley (166,000 tonnes) was sold under pre-harvest contract as at the 1st April 2013. This compares with an estimated 226,000 tonnes of feed wheat and 176,000 tonnes of feed barley in 2012. Thus as total tonnes harvested are only slightly down on 2012, a higher percentage of grain needs to be sold on the spot market. Significant stocks of unsold grain were also carried over from the 2012 harvest. Combined with the estimated unsold stock from the 2013 harvest, the estimated total of unsold grain in the market as at 1 April 2013, is 135,000 tonnes of feed wheat, 157,000 tonnes of feed barley, and 49,500 tonnes of milling wheat. This is not taking into account the unharvested grain as at 1 April 2013. INTERNATIONAL SCENE Major Grain Crops m tonnes
Exports
320 280
Domestic
42
240 200 160 120 80
9
28
16 20
40
17
17
However, with low probability of a repeat of a severe supply shock in 2013, prices remain vulnerable unless multiple exporting countries experience large production issues. World wheat production is forecast to increase driven largely by forecast higher yields in the Black Sea region and the European Union. Additionally, producers are estimated to have increased the area planted in wheat in response to favourable prices at the time of planting. Overall world coarse grains production is forecast to rise by 10 percent in 2013-14 to 1.2 billion tonnes, with world corn (+11 percent) and barley production both forecast to increase. The forecast improvement in corn production reflects a recovery in the US. Corn production in the US is forecast to increase by 31 per cent in 2013-14 to 352 million tonnes. This reflects an expected return to average seasonal conditions in the major corn-growing regions, and an increase in yields versus the drought-affected crop of 201213. Additionally, the area planted in corn is forecast to increase by 2 percent in response to recent high prices. Driving daily price volatility over May has been a cool and wet spring, which has delayed the planting of the US corn crop. This is expected to place downward pressure on yields. In China, high domestic prices and the expectation of continued high levels of government support for grain production are expected to encourage producers to increase the area planted to corn. However, following record production in 2012-13, an assumed return to average yields is forecast to result in a small decline in production in 2013-14. BUDGETING PRICES
0 Corn USA
Corn Wheat Wheat Corn Wheat Wheat Corn Wheat Wheat CHI CHI IND BRL USA RUS ARG AUST CAN
Sources: ANZ, USDA
Most analysts are expecting international grain prices for key crops will fall by 10-20 percent over the first half of 2013-14. This is driven by expectations that the yields of key crops for the major producers and exporters will return to more normal levels in upcoming harvests. It is also anticipated farmers will plant an increased area of key crops in response to the favourable profit margins on offer. However, there are still many hurdles between the completion of planting and harvesting that need to be navigated. Low inventory levels, improving consumption, and nearterm weather-related concerns across several key exporters have already caused volatility and skewed near-term price risks to the upside for grain markets.
$ per tonne
New Zealand versus offshore – Wheat and Barley Prices
600
500
NZ Feed Wheat
Australian Feed Wheat landed
NZ Feed Barley 400
300
200 US Corn Price exc. freight 100 Jun-08 Jun-09 Jun-10 Sources: ANZ, Agrifax, USDA
Jun-11
Jun-12
ANZ Agri Focus / June 2013 / 18 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 Domestic grain prices are expected to remain stable or even increase over the first half of the 2013-14 season. While total grain production estimates for this year’s harvest have been in line with last year, extra demand for feed grains is anticipated from the livestock sector this winter/ spring. Short pasture conditions are expected to persist into the winter, and extra feeding of supplements is anticipated during this period and into the spring. With not a lot of extra silage/ hay sitting in storage after this year’s drought, reports of shortages of palm kernel extract, as well as the prospects of a higher dairy payout, solid demand for feed grains is expected, especially from the dairy sector. However, beyond this period, growers with unsold product and the 2014 harvest could face some downside risk from lower international prices. As always, it will depend how weather conditions evolve, but the anticipated fall in international grain prices by the end of 2013, coupled with an evaluated NZD, is expected to add some competition pressure once the main Northern Hemisphere crops have been harvested and are ready to export. APPLES
crops ever produced, with volumes of all the newer apple varieties higher. A diverse high-quality crop that is low in pest and disease issues is expected to have greater appeal in more valuable markets such as Asia. Elsewhere, supply from New Zealand’s main competitors and end export markets has been reduced due to weather impacts and low profitability compared with other alternatives, restricting investment in supply growth. The US apple crop was little changed with increases in Washington State offsetting reduced crops from Central and Eastern states, which were damaged by frosts. In Europe, production was down 5 percent, with reductions of 10-30 percent across NZ’s major end markets. In the Southern Hemisphere, Chile and South Africa have not increased volumes. Chilean production has actually declined by 15-20 percent over the past two years. Both competitors are also sending more fruit within their own continents as demand grows and prices improve. Additionally, due to a range of issues, retailers in the EU have been worried about the reliability of out-ofseason supply from these countries. This continues to support demand for NZ apples and price premiums above these competitors. ORCHARD-GATE OUTLOOK
SUPPLY National Export Production by Variety: 2013 Other Apples Pears 1.5% 1.7% Braeburn 21.2% Royal Gala Cox 33.3% 1.8%
Cripps Pink 6.7%
Pacific Rose™ 3.6% Pacific Queen™ 3.7%
Fuji 10.1% Pacific Beauty™ 0.7%
Jazz™ 12.9%
Granny Smith 2.7%
Sources: ANZ, Pipfruit NZ Inc
The national pipfruit harvest in 2013 has been reported as one of the best in 20 years. The colour, size, and taste are all reported as exceptional due to the calm and hot conditions over much of the growing season, in combination with irrigation when required. In addition, pest and disease issues have been less prevalent because of these conditions. The overall crop size is expected to have lifted by 3.5 percent to 16.9 million cartons (18kg). The crop is also being viewed as one of the most diverse
Overall restricted supply from other Southern Hemisphere producers and within Europe, combined with a high-quality crop more aligned to Asian tastes, is expected to see average FAS prices lift by $1-2 per TCE and possibly more if currency movements are favourable. VITICULTURE DOMESTIC SUPPLY At the time of writing (end of May) it was a little too early to know the exact size of the 2013 vintage. While yield reports have been mixed, it has been expected that national yields for the main varieties would be slightly above historical averages, but not as high as those achieved for the 2011 crop when the national Sauvignon Blanc crop hit an alltime record of 13.4 tonnes per hectare. For the 2013 vintage we have assessed the average Sauvignon Blanc yield at 12 tonnes per hectare, which is slightly above the 5-year average and well above longer-term averages. Chardonnay, Riesling and other prominent white varieties have been assessed on a similar basis. Pinot Noir yields have been lowered slightly below historical averages due to late frosts in Central Otago last year
ANZ Agri Focus / June 2013 / 19 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 which weighed on bud formation/flowering. While the cold flowering in December 2011 and frost hitting certain areas are expected to have had some effects on this year’s vintage, there have been a number of offsets. These have included: 1. A generally warm flowering in December 2012, which is expected to have more than offset last year’s cold flowering; 2. The easing of restrictions on yield controls in contracts by a number of wineries as they respond to the shortages of 2012 and current supply deficit; and 3. Some areas of vineyards that were planted several years ago only now having reached full maturity in terms of their productive capacity. Combined with a small increase in the total growing area of 1 percent, the total national crop has been estimated at 310,000 tonnes. This is 17 percent above last year, but still 6 percent below the 2011 peak. The Sauvignon Blanc crop is estimated to be 210,000 tonnes, up 16 percent on last year. Internationally, estimates for global production showed a 6 percent drop in 2012. Given flat consumption, this has led to a tightening in stocks and bulk wine exports. The decline was led by an aggregate 10 percent reduction in European supply. However, there were offsets, with the likes of US production increasing by more than 20 percent. The current focus is Southern Hemisphere yields from 2013 harvests, where most reports suggest increases (Argentina, Chile and New Zealand), but often off a low base. DEMAND Value Proposition between bulk vs. packaged $/L 9
2011-12
Nine months to March 2013
$8.45
$8.45
8
Average $7.02
Average $6.60
7 6 5 4
$997m
3 2
$2.95
$781m
$3.73
$149m
$180m
1 0
Export Packaged 118 m litres
Export Bulk 61 m litres
Sources: ANZ, NZ Winegrowers
Export Packaged 92.5 m litres
Export Bulk 40 m litres
Exports of wine surged further in 2011-12, up 16 percent by volume and 8 percent by value. Most of the growth was in low-value sales of bulk product, with volumes up 40 percent y/y. Packaged wine volumes increased by 6 percent y/y. The average price dropped to $6.60 per litre. The price of bulk wine was largely unchanged compared with the year before, but packaged wine decreased from $8.70 to $8.45 per litre. Domestic sales were slightly softer at 63.5 million litres (-2.7 percent), but because of the lift in exports declined as a proportion of overall sales to 26 percent. In the nine months to March, the average export price has increased by 6 percent to $7 per litre. The price of packaged wine has been largely unchanged, but the price of bulk wine has improved by 27 percent to $3.73 per litre, as well as declining as an overall proportion of total exports. Over the last nine months many European markets have been tough, with a decline in volume supplied. However, the reduction in bulk exports has led to some upside in prices for the likes of the UK market (a third of NZ’s total exports) where average export prices are up 19 percent y/y. Some of this has been wineries adjusting in-market prices to compensate for the appreciation of the NZD. The Australian market, which accounts for an additional third of NZ’s total exports, has also been tougher over the last nine months, with volumes down 8 percent y/y. There are reports of an overhang of stock from the large 18 percent lift in exports in 2011-12, which could be a drag heading into 2013-14. Offsetting this to some degree has been continued growth to the US (22 percent of total NZ exports by volume) and emerging Asian markets. The growth to the US has reflected a pick-up in bulk exports as some NZ wine companies access bottling facilities in the US, and some US wine companies build NZ wine labels and brands into their offerings. SUPPLY AND DEMAND BALANCE Given current export trends, it would take a very large 2013 vintage to create a surplus of wine in 2013-14. Factoring in the year-to-date 6 percent reduction in exports and stable domestic consumption, with the 20 percent drop in the 2012 vintage we estimate there has been a 36 million litre supply deficit in 2012-13. This is estimated to be largest deficit since 2010 and has reduced stock levels, which nationally are now estimated to be down some 20 percent from their peak in 2009. For 201314 another deficit year is expected as the estimated 17 percent increase in supply is not expected to be enough to fill a bounce back in exports to 2011-12 levels after the 6 percent reduction this year.
ANZ Agri Focus / June 2013 / 20 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 as the ability to pass on higher prices in the main markets is expected to remain constrained.
Supply and demand balance of NZ wine Litres (millions) 50 Actual
25
High yield
0 -25 -50
Overall, the average wine export price are expected to lift to $7.40 per litre, which should translate into a national average grape price of $1,550 per tonne. Sauvignon Blanc is expected to be between $1,400 to $1,750 per tonne, with a national average around $1,500 per tonne.
Average yield
-75
KIWIFRUIT
Low yield
-100
DOMESTIC SUPPLY
-125 2001
2003
2005
2007
2009
2011
Kiwifruit Supply
2013f m trays
Sources: ANZ, NZ Winegrowers
Forecast
90
As a result we anticipate that bulk wine exports will stabilise around 30 percent of total export sales, as long as yields for this 2013 vintage are not historically high. We expect the destination of New Zealand bulk wine will continue to change, with further, potentially significant, falls in the volume going to the UK, further decreases in Australia, and much greater volumes to the US.
80
BUDGETING PRICES
10
Green
70 60 50 40 Gold
30 20
0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Grape and export wine prices $ per tonne
$ per litre 12.5
2,500
2,000
Export prices (RHS)
1,500
10.0
7.5
1,000
5.0 Grape prices (LHS)
500
2.5 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013f
Sources: ANZ, NZ Winegrowers
Examining the relationship between export prices for wine and grapes shows the two broadly move together. With export prices averaging $6.60 per litre in 2011-12 this translated into a national average grape price of $1,315 per tonne. Grape prices have moved up more than wine prices in 2012-13 as wineries have used more attractive contracts with longer terms to secure supply. This trend is likely to continue in 2013-14 given a forecast fourth year in a row of a supply deficit. Wine prices are also likely to be supported by a stabilisation in bulk exports, and better prices for these. Packaged wine prices are expected to be stable
Sources: ANZ, Zespri
The drought has had a more significant impact on this year’s kiwifruit crop than first thought. The dry conditions have resulted in fruit being much smaller than anticipated, and the harvest occurring later than usual as growers have tried to grow fruit to a bigger size. The positive and offsetting impact from the drought is that dry matter levels are expected to be high, which should result in good tasting fruit. For Green supply there has been some minor impact from Psa also. Overall for the Green crop it is now expected total supply will be somewhere between 66 and 69 million trays, as well as a smaller profile for the fruit. This is a 3.5 to 7.5 percent reduction from the 2012 harvest. For Gold the impact of Psa is more severe, especially with the regrafting that took place from Hort16A to Gold3 in 2012. It is expected volumes will be between 11.3 and 13.3 million trays in 2013. This is well down on the 18 million trays that were expected late last year, and half the 25 million trays that were produced in 2012. At this stage there has been no change to the supply outlook for the next 3 to 5 years, albeit the recovery in production will likely take longer than anticipated and Psa uncertainty means the risk is to the downside.
ANZ Agri Focus / June 2013 / 21 of 40
FEATURE ARTICLE: AGRICULTURAL PRICE PREVIEW 2013-14 DEMAND The supply of kiwifruit for the different varieties and the NZD will continue to be the biggest determinants of orchard-gate pricing over the next 5+ years. The forecast decrease in both Green and Gold volumes will bring price tension across key markets and allow Zespri to sell to higher-returning markets (i.e. reduced volumes will mean less fruit has to be pushed into low-returning markets). The lower volumes also shorten the selling season, reducing fruit loss and providing pricing tension for packhouse services. Some packhouses have started to diversify to stay in business. Obviously, these effects will be more pronounced for Gold given the approximate halving in supply this harvest. In-market demand for Gold is still high, and there is a reported willingness from buyers to pay higher prices to secure supply. With significant growth in Gold supply still anticipated over the next 3-5 years it will be a carefully balancing act to ensure Gold fruit remains in most markets to enable growth to occur in the future. As Green volumes are more slowly reduced from 2012 to 2016 the same effects on pricing will also be prevalent, but not to the same extent, because Green is more of a commodity. For the year ahead Green demand remains strong in all Asian markets, with the possible exception being Korea, where free trade agreements with other countries – in particular Chile – are allowing significant increases in imported fruit at lower prices. China demand remains strong and fruit is clearing the wharves with no problem at present despite the historic issues in China that are being dealt with. At present Chile is not exporting as much kiwifruit into Europe, and there is very little Northern Hemisphere fruit remaining from last season, meaning a reasonably empty market. BUDGETING PRICES Kiwifruit returns $ per tray 12
Forecast
10
Gold
8 6 4 Green 2 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Sources: ANZ, Zespri
Overall in-market pricing for both Green and Gold will be strong in 2013, but against this there will be a negative impact from a higher effective NZD as some of Zespri’s longer-term hedging cover for the USD and euro rolls-off. With this as the backdrop returns for Green are likely to be slightly lower in 2013-14, with an estimated NZD impact of $0.25 per tray and the impact of smaller fruit size offset to some degree by higher in-market pricing and a better marketing mix into higher-return markets. A similar dynamic is expected for Gold fruit, but the larger reduction in supply will bring much more pronounced pricing tension. This creates a better marketing mix with a larger proportion sold into higher-return markets that are willing to pay more to secure product. With this in mind orchard gate returns for the 2013 are likely to be better than the $10.45 per tray seen in 2012. For future years, while the expected recovery in supply will be slower, there will be price declines as supply once again increases.
ANZ Agri Focus / June 2013 / 22 of 40
THE MONTH IN REVIEW
ASSESSMENT In most parts of the North Island pasture conditions have improved substantially. Combined with lifts in farm-gate prices this has improved morale. However, feed conditions in the lower half of the South Island are tighter heading into winter. This has seen a significant gap open up between North and South Island prices for prime beef and lambs over May. Regular rainfall and warm weather over much of the North Island from mid April has contributed to a stronger than expected recovery in pasture conditions following the drought. Soil moisture temperatures have generally been 1-2 degrees higher than normal and sales of urea and nitrogen-based fertiliser have been strong. Combined with better soil moisture levels, this has seen a good response from winter crops and pastures. Despite lower feed reserves, this has positioned most farmers well for the winter. However, there are still isolated areas of concern. Soil moisture levels on the East Coast were extremely variable throughout May, and a band from Taihape through to Central Hawke’s Bay missed out on decent rain until late May. As soil temperatures have dropped the window to increase pasture cover has closed quickly for these areas. In the South Island, while most regions (apart from the top of South and West Coast) had a pretty good season, most still became dry in April. All regions received decent rainfall in May, but in the lower half of the island average daily temperatures also dropped considerably over the same period. This meant plant growth did not respond to the same extent as in the North Island. Any further rainfall from the start of June is expected to have little impact on pasture and winter crop covers. Many winter crop yields throughout Otago and Southland are only two-thirds of what they should be. Combined with the fact some feed reserves were used in April and extra livestock found their way from the North to the South Island during the drought, this has created concern there may be a pending feed shortage in some areas. This has seen upward pressure start to emerge on the cost of feed and dairy grazing. DAIRY General morale in the dairy industry has lifted substantially with the improvement in pasture conditions over May and Fonterra’s announcement of a solid opening milk price of $7.00 per MS for 201314. Cashflow is still expected to be tight in the worstaffected drought areas through to August/September though. Beyond this, as long as Mother Nature is kind, the opening advance of $5.00 per MS should help ease cashflow constraints and reduce overdrafts that were run up in 2012-13.
National milk production is expected to finish the 2012-13 season back 2 percent on last year’s all-time record. This has been driven by a 20 percent y/y reduction in production over the drought-affected months of February through to May. The South Island managed an increase of 7.5 percent, which was in sharp contrast to the North Island, where production dropped 8.0 percent. Another area of interest has been a reported increase in interest to invest in new effluent ponds and improved standoff/feed pads in response to increasing on-farm environmental standards being proposed by regional councils and the Sustainable Dairying Accord. MEAT AND FIBRE Total lamb production is now tracking 11 percent ahead of last year, which is not too far off expectations. Average per head weights are back 0.57 kgs y/y, with the North Island down nearly 1 kg y/y. The turn-off of breeding ewes in the North Island continues to track 500,000 head above last year. Combined with lower lambing percentages this will reduce next season’s lamb crop and affect store and prime prices. Added to this in 2013-14 will be carry-over costs from higher overdrafts and other drought costs. On the beef production side, cow slaughter has slowed with the improvement in pasture conditions and is now tracking 34 percent ahead y/y. Steer (+8 percent) and heifer (+4 percent) slaughter is tracking slightly above last year, with all the increase driven out of the North Island. In both islands bull beef slaughter is very similar to the previous year. HORTICULTURE AND VITICULTURE The drought has had a more significant impact on this year’s kiwifruit crop than first thought. The dry conditions have resulted in smaller fruit, which will weigh on average prices. The positive and offsetting impact is that dry matter levels are expected to be high, which should result in goodtasting fruit. Overall, the total size of this year’s harvest is expected to be around 80 million trays, 17 percent down on last year. In the viticulture sector the grape crop is expected to increase, with better yields for most growers. Combined with improved prices, this means most growers are expected to generate reasonable profits, with most of the cash arriving over the next three months. With many properties being run very frugally for the past 3-4 years this is expected to result in an increase in maintenance and new capital expenditure.
ANZ Agri Focus / June 2013 / 23 of 40
RURAL PROPERTY MARKET
SUMMARY There has been a slight slowing in activity in the rural property market in recent months as farmers have focused on getting through the drought in many regions. Total farm turnover dropped by 7 percent in the three months to April, with softness evident across all land types apart from arable. Average prices have been more resilient, with most land types showing stability within recent ranges. Dairy and other land suitable as support blocks for grazing or crop production continue to attract decent demand. Horticultural property prices have bounced back toward the 10-year average as confidence in the outlook for kiwifruit, pipfruit, and viticulture continue to improve. The reverse has occurred for grazing property, with both prices and turnover down as any structural change in the meat sector remains very uncertain. Seasonal impacts and farmers focusing on recovering from the drought imply a reduction in rural property listings and activity over coming months.
However, the forecast for generally better farm-gate prices across the main primary sectors in 201314 should ensure stability in land prices, and see turnover return to recent levels when better pasture conditions arrive in the spring. Offshore interest in the NZ “food” story remains, interest rates are low, and liquidity continues to be pumped into real assets despite most asset classes looking overvalued on traditional metrics. Still there are also many uncertainties, such as increasing environmental regulation and industry-specific challenges that need to be factored in. The table and charts below show the official statistics from REINZ for farm sales in the 3-month period ending April. The table is broken down into farm sales by each of the main farm types, both the number of sales during the 3-month period, and the median price per hectare. The figures have been seasonally adjusted and therefore the components may not necessarily add to the total. While the data is volatile, it is the best available on current market conditions.
FARM SALES BY FARM TYPE 3-Month Seasonally Adjusted Number of Sales
Dairy
Median Price ($ per ha) Number of Sales
Livestock – Finishing
Median Price ($ per ha) Number of Sales
Livestock – Grazing
Median Price ($ per ha) Number of Sales
Horticulture
Median Price ($ per ha) Number of Sales
Arable
Median Price ($ per ha)
All Farms ex. Lifestyle
Number of Sales Median Price ($ per ha) Number of Sales
Lifestyle
Median Price
Current Period
Previous Period
Last Year
10-Year Average
Chg. Y/Y
Chg. P/10yr
61
66
47
75
33,800
34,400
32,000
29,000
72
75
61
64
20,200
20,200
14,500
13,300
181
195
210
235
12,300
12,400
14,000
14,900
30
38
20
51
123,900
113,600
142,500
146,600
14
14
16
19
33,000
32,000
25,100
25,300
379
409
381
479
20,500
20,700
18,800
19,500
1,654
1,595
1,436
1,612
516,000
504,000
459,000
404,000
Farm Sales, Median Price
Farm Sales, Median Price $ per hectare (3 mth median, sa)
$ per hectare (3 mth median, sa)
50,000
30,000
45,000
Chg. P/P
Dairy
25,000
40,000 Livestock - Grazing
35,000
20,000
30,000 15,000
25,000 20,000
10,000 Jun-04
10,000
All farms ex. lifestyle
15,000
Jun-06
Sources: ANZ, REINZ
Jun-08
Jun-10
Livestock - Finishing
Jun-12
5,000 Jun-04
Jun-06
Sources: ANZ, REINZ
Jun-08
Jun-10
Jun-12
ANZ Agri Focus / June 2013 / 24 of 40
RURAL PROPERTY MARKET
As always, the spread in prices and turnover of rural property across the country and regions remains wide. However, within this there are some clear trends. The clearest trend is that any piece of land that can show solid cash returns – whatever the intended use – continues to receive good buyer interest. If it can’t, then the seller often has to discount the price until this box is ticked. A lot of this change in mentality can be put down to three things: 1. A change in bank behaviour since 2008 (in part reflecting regulatory changes), with a larger focus on cash returns and the ability to service debt as opposed to outright security. The two are obviously interlinked, but the pendulum simply went too far in one direction pre-2008. 2. Higher-geared buyers, who set the market in the run up to 2008, being replaced by investor funds and medium to larger sized farmers with strong balance sheets. These new buyers have been very analytical and risk analysis focused when making their investment decisions. Hence, we are seeing a bigger focus on cash returns and the possible risks (be it commodity prices or regulatory) attached to generating the returns. Interestingly, the investor funds have not just been foreign interests, but also include an increasing number of domestic investor funds. 3. A change in farmer behaviour. It’s far from across the board, but we’re seeing more and more of a business savvy culture develop across the rural scene. This has seen a change in the relationship between credit growth and land price appreciation. The two walked hand-in-hand up until 2008. But in the last two years there has been an increasing divergence, with the average rate of credit growth only slightly more than half the average annual change in land prices. In the 2002 to 2008 period credit growth was slightly stronger than the appreciation in land values. Examining the backward-looking indicators for the rural property market on page 23 shows the turnover of dairy properties continues to be solid. Monthly sales figures have averaged above 80 percent of their 10-year average since the beginning of the year. The average three-month period price achieved since the start of the year has shown improvement, increasing by $1,500-2,000 per hectare. This is within the upper band of postGFC averages and could be put down to normal fluctuations in the locality and quality of properties
sold. However, the increase could also capture a higher Fonterra share price starting to flow through into the sale figures. The post-GFC average for the three-month period has been $32,500 per ha, with a range of $30,000 to $34,000. In the month of March 41 dairy farms were sold with an average sale value of $36,900/ha, or $39 per MS. The average farm size was 132 hectares and the average production/ha was 940 kgs of MS. In the month of April 29 dairy farms were sold with an average sale price of $27,600/ha, or $30 per MS. The average farm size was 129 hectares and the average production/ha was 928 kgs of MS. Finishing land prices have moved back up to the $20,000 per ha mark in recent months and turnover has remained robust, especially in dairying hotspots. In fact monthly turnover has been remarkably stable since the start of the year, running 15 percent above the 10-year average. Trend prices look to have settled in an average range of $18,000$20,000 per ha. Volatility outside this range is being driven by the monthly mix of sales. Arable land sales have also been solid, with prices very strong. In contrast, the average grazing land price for April and March has slumped to $12,300 per ha due to the drought and drop in sheepmeat and wool prices. This is down 11 percent from the average price of $13,800 per ha that was achieved over the two previous farming seasons. While a modest bounce in farm-gate prices should help, the effects of the drought in the worst-affected areas will continue to apply pressure on production levels and profitability in the 2013-14 season. This will continue to suppress prices. Horticultural property prices have shown improvement. Interest in kiwifruit orchards has picked up, with confidence improving as Psa has been less prevalent with the warm calm conditions. Several green kiwifruit orchards have recently sold at $130,000-$140,000 per ha versus previous sales, which were in the $80,000-$110,000 per ha range. The viticulture land market has also been fairly strong in the core Wairau areas with sales being transacted at $180,000-$200,000 per ha in the better parts. Additionally there have been several strong bareland sales for future development recently. An extra 400ha-500ha of new grape plantings is expected this winter/spring, which will represent a 1-1.5 percent increase in the national growing area.
ANZ Agri Focus / June 2013 / 25 of 40
ECONOMIC INDICATORS
EXCHANGE RATES Current Month
Last Month
Last Year
Chg. M/M
Chg. Y/Y
NZD/USD
0.83
0.85
0.78
NZD/EUR
0.63
0.65
0.61
NZD/GBP
0.54
0.55
0.49
NZD/AUD
0.84
0.82
0.78
NZD/JPY
81.8
82.6
62.0
NZD/TWI
76.8
78.4
69.1
NZD Buys USD NZD/USD
Forecast
0.90
0.80
0.70
0.60
0.50 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Sources: ANZ, Bloomberg
NZ INTEREST RATES Current Month
Last Month
Last Year
Chg. M/M
Chg. Y/Y
Official Cash Rate
2.50
2.50
2.50
90 Day Bill Rate
2.65
2.65
2.59
1 yr
2.76
2.48
2.33
2 yr
2.87
2.48
2.37
3 yr
3.10
2.54
2.42
5 yr
3.37
2.69
2.84
10 yr
3.93
3.32
3.57
Effective Rural Rate
6.00
6.04
6.46
50.16
49.82
47.16
Agricultural Debt ($b)
Key NZ Interest Rates Percent 10
Forecast
Effective Rural Rate 8
6 10-Year 4 90-Day Bill 2 OCR 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Sources: ANZ, RBNZ
The NZD has retreated from stretched levels, but is expected to remain elevated in coming months. While our new forecasts have NZD/ USD falling to 0.75 by the end of 2014, it is likely to remain above 0.80 for much of 2013. This profile reflects two key judgements. The first is an expectation that near-term support will be provided by New Zealand’s comparably high interest rates, stronger economic growth, still-high commodity prices, and the quantitative easing policies being pursued by the US, UK and Japan. These factors have played a significant role in driving the currency to elevated levels in recent years. However, they will not remain in place forever – which leads to our second judgement, namely that these “advantages” will start to dissipate as the US recovery broadens and the Federal Reserve starts to wind back its quantitative easing programme. Of note, while the outlook for the NZD/USD is for a period of consolidation before an eventual mild depreciation, we expect the NZD/AUD cross to extend its recent gains. Many of the factors driving this are familiar ones: higher interest rates compared to those across the Tasman, divergent monetary policy biases, and NZ commodity prices holding up better. Against this backdrop, we expect the NZD/AUD cross to appreciate to 0.86 by the end of 2013 and to 0.87 by the end of 2014. On the interest rate front, we continue to expect the RBNZ to leave the OCR on hold for the remainder of 2013, with the first rate hike likely in Q1 2014. Recent activity data has almost universally “surprised to the topside”, reinforcing the improvement in confidence. But while trend growth of 3.0 percent or more beckons in 2014, the RBNZ have made it clear that this will not automatically lead to successive increases in the OCR like those observed in past cycles. It is true that the economy is gathering momentum, leading to an unwelcome rise in house prices. However, as Governor Wheeler noted in a speech in late May, while “housing demand can be constrained by raising official interest rates”, “increasing the OCR would carry significant risks”. He went on to say that “the exchange rate impact (of OCR increases) could be pronounced if investors believed that the increase in the OCR was a precursor to further increases and saw New Zealand as leading other countries in the monetary policy tightening phase”. A monetary policy response is coming, but it will be some time away, and it will be more muted than earlier episodes. Long-term interest rates are likely to rise as markets position themselves for an eventual normalisation of US Federal Reserve policy. But like the New Zealand monetary policy outlook, this will be a long, drawn-out and gradual process, rather than a sharp cyclical rise. Some perspective beyond the United States is also warranted. While the outlook is improving there, the outlook for China has softened, and Europe remains mired in recession.
ANZ Agri Focus / June 2013 / 26 of 40
ECONOMIC INDICATORS
INFLATION GAUGES Annual % change
Current Qtr
Last Qtr
Last Year
Chg. Q/Q
Chg. Y/Y
Consumer Price Index
0.9
0.9
1.6
Farm Input
-0.8
1.5
6.1
Net Imp. Margins PPI
-1.4
-6.4
-10.3
Farm expense movements 2012-13 - Dairy Livestock purchases Electricity Local & central rates Administration Insurance premiums Wages Animal health Freight Rent & hire All inputs Feed & grazing Dairy shed expenses All inputs ex. livestock Miscellaneous Repairs & maintenance Fertiliser, lime, & Weed & pest control Fuel Interest rates -4%
-2%
0%
2%
Sources: ANZ, Statistics NZ
4% 6% Annual % change
Farm expense movements 2012-13 - Sheep & beef Electricity Animal health Insurance Local & central rates Administration Shearing Wages Freight Rent & hire Feed & grazing All inputs ex. livestock Repairs & maintenance Fertiliser, lime, & Weed & pest control Fuel Interest rates All inputs Livestock purchases -25% -20% -15% -10% -5% Sources: ANZ, Statistics NZ
0% 5% 10% Annual % change
Farm expense movements 2012-13 - Horticultural Insurance premiums Electricity Fertiliser, lime, & seeds Local & central rates Rent & hire Administration Wages Freight Cultivation & harvesting Repairs & maintenance All inputs Fuel Interest rates Packaging costs Weed & pest control -6% Sources: ANZ, Statistics NZ
-4%
-2%
0%
2% 4% 6% Annual % change
Statistics New Zealand have released their latest annual survey of on-farm cost movements for the 2012-13 farming season. The annual movement for the “all farms” measure was down 2.6 percent when livestock where included, and up 0.8 percent when livestock are excluded. This latter figure was in line with annual headline inflation in NZ, which has been 0.9 percent over the last two quarterly reads. This was the lowest increase in farm costs since 2009-10 and third lowest annual rise in the last 12 years. A 0.8 percent y/y increase compared with an average of 3.1 percent y/y during this period provides some relief to margins. However, eyeing the categories for where price movements have occurred over the last year shows that while discretionary expenditure items have generally continued to experience moderate pricing pressure, non-discretionary items continue to move substantially higher. This potentially creates less flexibility in farm budgets when expenditure needs to be adjusted down because of a drought, or lower farm-gate returns. Interestingly, a lot of this comes back to the high NZD reducing tradable inflation and the cost of many discretionary items. Livestock purchases were again one of the largest movers. In the dairy sector breeding livestock values held up relatively well and this led to a 6.1 percent y/y increase in livestock purchasing costs. In the sheep and beef sector the reverse happened as store stock prices collapsed due to lower prime schedule prices and the drought across a large proportion of farms – this lead to a 23 percent decline in livestock purchasing costs. In the livestock sector the other big movers (up) were electricity, local and central government rates, insurance premiums, administration, and wages. In the sheep and beef sector animal health also made it into the top five. It was a similar picture for horticultural growers, with the biggest increases – in order of magnitude – being insurance premiums, electricity, fertiliser and seeds, local and government central rates, followed by rent and hire equipment. The largest declines in price pressures were seen in weed and pest control, fuel and interest rates. Packaging costs also declined for the second year in a row for horticultural growers. Overall farm input costs excluding livestock purchases for both dairy and sheep and beef increased by 0.7 percent y/y in 2012-13. Pricing pressure was less pronounced for horticultural growers with overall input costs increasing by just 0.2 percent y/y.
ANZ Agri Focus / June 2013 / 27 of 40
KEY COMMODITIES: OIL AND FREIGHT
OTHER COST INDICATORS Current Month 1
Crude Oil
2
Ocean Freight
Last Month
Last Year
Chg. M/M
Chg. Y/Y
95
93
87
822
863
923
1
USD per barrel, grade WTI
2
Baltic Dry Index
Crude Oil Indicator Price (WTI) USD per barrel 150 125 100 75 50 25 0 Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Sources: ANZ, Bloomberg
Net Implied Margins PPI Ag/Forestry/Fishing (Outputs - Inputs) Annual % change 15 10 5 0 -5 -10 -15 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sources: ANZ, Statistics NZ
The Brent/WTI spread hit a low of USD7.7/ bbl in May and there is potential for it to move lower. US crude prices are at risk from rising oil inventories, with supplies expanding much faster than demand. The price for WTI relative to other grades could be limited by pipeline costs to the Gulf Coast and a supply glut in Houston. Recent local refinery outages on the US Gulf Coast have seen stockpile declines pause in both Cushing and Houston (further south), despite a mild pick-up in demand. This impact is expected to be temporary as pipelines begin to divert crude to the Gulf Coast as the US driving season continues in June. With more domestic supplies reaching the US Gulf Coast it is expected imports of sweet crudes will be further cut back, reducing the Brent/WTI spread. Brent prices could temporarily break higher than the recent USD100-105/bbl trade range, but we expect this could be short-lived. The key focus is on slowing industrial activity, especially in China, which has dented expectations for firmer seasonal demand. Supply-side losses from Middle East tensions could surprise on the upside, but rising Saudi Arabian production should offset any outages from the region. Quarterly PPI margins improved in March for the second quarter in a row as soft commodity prices continued to improve and cost pressures remained subdued. All sectors except the sheep and beef sector showed an improvement. The largest increase was for horticulture and fruit growing, followed by dairy. Overall, this led to the annual decline in aggregate PPI margins slowing from -6.4 percent to -1.4 percent. Overall, the index is now 12 percent below its recent peak in the 2011 March quarter. Within sectors, horticulture and fruit growing benefited from improving output prices for wine, kiwifruit and apples. With quarterly input price pressures largely unchanged this led to a 16 percent y/y increase in margins. In the dairy sector it was a similar story, with the improvement in international dairy product prices leading to a quarterly increase of 5 percent. However, on a yearly basis dairying is still back 9 percent. In the sheep and beef sector a 7.8 percent drop in output prices drove a 4 percent q/q decline in net margins. This was driven by lower in-market prices as the drought increased supply and the overhang of frozen inventory and other effects from the season 2011-12 continued to weigh. In the other sectors movements for both outputs and inputs were minimal.
ANZ Agri Focus / June 2013 / 28 of 40
ECONOMIC BACKDROP
SUMMARY The economic outlook has a reasonably solid look to it, though there is likely to be ongoing quarterly volatility and disparate rates of sector performance as secular forces shaping the outlook collide. We’ve pencilled in 2.4 percent growth this year and 3 percent the year after. Microeconomic initiatives could help soften tensions from opposing forces. A key judgement we are making is that the current rundown in household saving will prove temporary. Such restraint is a necessary ingredient of the penance process for rebuilding the economy’s resilience. It’s also required for the antithesis of growth – a higher OCR – not to materialise.
but Auckland’s issue is simply too few houses. A supply-side response is in train: 13,000 houses per year to be built. Given natural population growth of 20,000+ per year in Auckland, improving migration trends, and a starting point shortage of 30,000 units, we’re talking a decade before the shortfall will be eliminated. Auckland needs more houses, and the rest of New Zealand can ill-afford to see Auckland’s housing issues drive an asset bubble. •
The rebuild of New Zealand’s second-largest city. With estimates of the rebuild revised up to $40bn, an event bigger than Ben Hur has gotten bigger. A glass half full interpretation focuses on the impetus to economic activity: that’s a lot of growth and jobs in the pipeline for years to come.
•
Tight fiscal policy. The Government wants to return to surplus by 2014/15. That means taking more money out of our pockets than we get back. The economic headwind is 3¼ percent of GDP over the next four years.
•
Mother Nature. The drought has broken but the damage will take two years to work through the system.
OVERVIEW Our big picture overview remains on track, with the economic outlook influenced by a series of offsetting structural influences: •
A soggy national balance sheet. Total net external debt and the current account deficit remain high. Nationwide saving remains low in relation to our investment needs. While the Government is striving to balance their books, households are once again showing signs of consuming more than they are earning.
•
An uncertain global scene. We’re seeing improvement, but we suspect we’ll remain prone to wobbles. The spotlight is now turning on Australia, which is looking wobbly.
•
An inappropriate mix of monetary conditions, given the need to rebalance the economy. Interest rates are low; the NZD is approximately 15 percent overvalued. We expect the monetary mix to slowly start to shift in a direction less obstructive to the required economic rebalancing, but this will be a gradual process.
•
Rising connectivity to the fast-growing Asia region. This is helping to underpin strong commodity prices, a rising share of exports heading towards Asia, and more inbound tourists from the region. You need to earn a dollar before you spend one, and the Asia growth story is a key part of that.
•
Steps to unlock New Zealand’s natural resource endowment. NZ is estimated by the World Bank to be the 8th wealthiest country around the globe in terms of natural capital (per capita figures), and the richest when it comes to renewable resources. These represent unique points of difference to drive growth.
•
Addressing housing shortages in New Zealand’s largest city. Loan-to-value ratio restrictions to curb housing excesses are pending,
On top of this we have the usual array of cyclical forces. Residential and business investment is recovering from cyclical lows. The lowest mortgage interest rates in 50 years are kick-starting interest rate sensitive pockets, with a turnaround in net migration inflows adding to the demand for housing. This is most evident in Auckland and Canterbury, with house prices 17 and 13 percent above their mid-2007 peaks respectively, while house prices elsewhere are still below or just above their pre-GFC peaks. While the demand for labour is picking up, benign wage growth and regional and sector differences in employment gains suggest a strong and steady nationwide labour market recovery is not yet assured. The return to sub-5 percent unemployment rates remains some way off. How New Zealand navigates this concoction will increasingly come down to microeconomics: the small things that can help grease the wheels of an economy. This means keeping an eye on initiatives to expand the pool of construction labour, steps to mitigate Auckland’s housing pressures, lifting productivity and public sector performance, how NZ is wrapping an innovation strategy around its unique resource mix, what is happening in regard to water, oil exploration and mining … to name but a few. Small things done well add up to macroeconomic muscle. The past few years have seen considerable change, and getting the basics done well is an ongoing process. It takes time to accrue into sustained macroeconomic performance
ANZ Agri Focus / June 2013 / 29 of 40
BORROWING STRATEGY
SUMMARY Indicative rural lending rates are up slightly since our last edition. While there has been no change to the OCR, or a material change in OCR expectations, the point-to-point change does mask what has been a period of significant volatility. Long-term interest rates have been the big movers, with 10 year bond yields collapsing to record lows in most countries following the Bank of Japan’s dramatic policy easing, only to rebound on improving US data and optimism that the Fed may taper back QE3 by year-end. With OCR cuts off the agenda, and rates still low by historic standards, it makes sense to slowly increase fixed cover. However we would caution against jumping in “boots and all”. OUR VIEW Indicative rural fixed rates are up slightly since our last edition, but this masks some significant volatility in the interim. As an example, the 5 year rate (including margin) fell to as low as 6.25 percent in early May, some 0.3 percent below current levels. The question then becomes; was this an opportunity lost, and will interest rates continue heading higher? But first, let’s take a step back to gather some perspective. While interest rates have moved higher, they remain very low by historic standards. Still, what has become increasingly clear is that the domestic economic outlook is steadily improving, and with that comes a shift in the risk profile. The likelihood is that rates are now likely to grind steadily higher and this should at least prompt borrowers to weigh up the benefits of fixing against the costs (as fixing does cost more). One of the reasons interest rates have started to move up is because ample liquidity globally has been working its magic and credit costs (think funding costs) for financial intermediaries have improved. So borrowers may “win” on one side, while “lose” on the other. We fully expect to see more oscillations in both wholesale interest rates and funding markets. To see both move in tandem (wholesale rates up and funding costs down) in a trend-like fashion you need to be comfortable that the economy is on a strong footing. That is a heroic assumption, despite some signs of improvement. Beyond global interest rate gyrations, the key development has been the improvement in the tone of domestic data. Leading indicators like business and consumer confidence have been ticking up for some time now, and financial conditions have tended to be very supportive. But we are now starting to see this improvement being reflected in retail sales, house prices, employment, building activity and the like. Some of this is welcome (like the shift up a gear of Christchurch rebuild activity) and some is not (like the rise in Auckland house prices).
The outlook offshore is more mixed. Indeed, while the outlook for China has softened, and Europe remains mired in recession, there is a growing sense of confidence that the US recovery has broadened, and the economy will pull itself out of its hole. This has brought with it increased confidence that the US Federal Reserve will soon begin to pare back its quantitative easing programme. This latter development has been the biggest driver of the recent rise in interest rates globally. However, it’s not all plain sailing – the Bank of Japan has only just started the massive expansion of its money supply. When this policy was announced at the end of March, it led to a profound drop in global interest rates. Nonetheless, given the improvement in the local and US outlook, we are nearing the point in time when it will become appropriate for floating rates to start rising. Consequently, it makes sense to consider fixing. At the moment, the step up to 6 months and 1 year is minimal, so making the decision to fix for these terms is not a difficult one. But is it worth considering a longer term? Rural Lending Rates (incl. typical margin) Term
Current
Breakeven rates in in 6mths
in 1yr
in 2 yrs
in 3 yrs
Floating
5.65%
6 months
5.68%
5.85%
6.11%
6.51%
6.82%
1 year
5.76%
5.98%
6.23%
6.61%
6.91%
2 years
6.00%
6.20%
6.42%
6.76%
7.06%
3 years
6.20%
6.39%
6.58%
6.91%
4 years
6.38%
6.56%
6.74%
5 years
6.55%
On the basis of breakeven tables, which rise only gradually, we do see some value in fixing now, particularly if there is budget to pay the higher rates. For example, the 3 year rate “needs to” rise to 6.91 percent in 2 year’s time (which is 0.71 percent above the current 3 year rate) for fixing for 3 years and then re-fixing for 2 years on maturity to prove cheaper than fixing now for 5 years. That is not a significant rise, and certainly not out of left-field. As we have long argued, certainty has its benefits, but so too does flexibility, and borrowers need to come to their own views on the matter. We would also note that the 5 year rate is 0.9 percent higher than the floating rate, and some borrowers may not be in a position to handle such a cost increase. Consequently, we retain the view we have had since March – that there is some merit in fixing now as the low for rates is past, and as such, borrowers ought to consider fixing for a term (or mixture of terms) that balance cost against their need for certainty and flexibility.
ANZ Agri Focus / June 2013 / 30 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS SUMMARY Water is one of New Zealand’s unique strategic advantages. How is New Zealand progressing unlocking such advantages? Issues such as water management and water quality have been covered in prior editions. In this month’s Education Corner we turn our attention to irrigation schemes, somewhat of a flag-bearer for the wider NZ.Inc “rich in renewable resources” story. New Zealand’s land under irrigation has increased by 17 percent over the last five years to 721,700 hectares. Most of this expansion has occurred in Canterbury, which accounts for 62 percent of the total irrigable area in New Zealand. There has also been a shift to more efficient irrigation systems with a 15 percent reduction in the area that uses flood systems, and an increase in the area of spray (27 percent) and micro systems (10 percent) used. There are currently plans in place for 16 new water storage and irrigation schemes around the country. These schemes are expected to increase the total irrigable land by a further 655,000 hectares. The schemes are at various stages on the development curve, from preliminary assessment (most of the larger schemes) through to the initial stages of construction. By their very nature many of the projects are very complex, and due to their impacts on the wider community involve a great deal of collaboration and communication with stakeholders. Coupled with the extraordinary amount of planning needed, the time between the initial proposal and water arriving at the farm gate can be (or should we say will be) a very long time. Building the proposed 16 schemes is not expected to be cheap, with a total projected cost of between $4 and $5 billion, or $6,100 to $7,600 per hectare. Nevertheless, on completion these schemes would nearly double New Zealand’s total area under irrigation and mean nearly two-thirds of irrigable land has access to water. A VALUABLE BUT FINITE RESOURCE It is no secret that water is one of New Zealand’s key natural resource advantages. Each year over 500 billion cubic metres falls on New Zealand as either rain or snow. Directly and indirectly, it is the fuel for much of our business activity. Outside of primary production, water drives much of our electricity generation, features heavily in tourism activities, and plays a significant part in much of our social, cultural and recreational identity.
New Zealand ranks 4th of 30 OECD countries for the size of its renewable freshwater resource on a per capita basis. Historically this has placed New Zealand at a distinct advantage; we could, did and continue to export large quantities of primary produce that are reliant on water for their production. Estimates from the World Bank Wealth of Nation’s report rank New Zealand as the wealthiest country in the world looking at renewable resources, in effect an acknowledgement of being “long” productive land. Water + land = a potent mix, particularly when you compare New Zealand to the fast-growing Asia region which is “short” of both. Renewable water resources (2007) Cubic meters per capita per year 90,000 78,993 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000
23,964 10,343
8,349
6,517
4,504
2,130
High Income
Middle Income
China
0 New Australia Low Zealand Income
World
Sources: ANZ, United Nations ESCAP
However, previous experience (and not just recent) has shown that when it comes to water falling on Aotearoa it usually occurs in the wrong place, at the wrong time, and in the wrong amount. This is illustrated by the recent drought, which hit the North Island and the West Coast of the South Island. This event is expected to cost the country up to 0.5-0.7 percent of GDP. Changing community objectives, increased competition for water, and quality and allocation limits being reached in some New Zealand catchments have pushed the Government into reviewing the framework for how we manage our water resources. On top of this we can’t lose sight of some economic objectives: New Zealand is a heavily indebted country which continues to live beyond its means (i.e. runs a large current account deficit). More income-generating capacity could help square the ledger and balance the books. This is where unique areas of natural advantage such as water can offer income generating opportunities. In this edition of Education Corner we look at how New Zealand is advancing with respect to water storage and irrigation investment to deal
ANZ Agri Focus / June 2013 / 31 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS with the over-allocation of water in some catchments and better utilise one of our areas of natural advantage. The benefits of irrigation have been known for a very long time, but despite this New Zealand irrigates only about 5 percent of our pastoral land. Part of the issue is the diminishing quantity of available water for irrigation. Around 41 percent of water that is used for irrigation is extracted relatively easily from groundwater sources that are stored naturally in aquifers. Access to this water is regulated by local government and historically it was issued on first-in first-served basis. Over time the race to access water has meant that in some regions water has been fully allocated, or over-allocated. Furthermore, with water conservation becoming increasingly important, extraction from run of river is no longer a viable means for long-term water security. With the realisation that water is a finite resource there is additional motivation for investment to capture water in order to make use of it at the right time, the right place, and in the right amount. MAP OF WATER ALLOCATION
of New Zealand’s irrigable area is already covered by irrigation schemes. When these schemes were first developed there was a focus on increasing agricultural productivity, but as time has passed there has been a realisation that the benefits of irrigation are more than just productivity-based, and involve risk management as well. Today, irrigation schemes provide an insurance against drought, boost productivity throughout the season, and increase land use flexibility. They also have the potential for other activities, such as hydro-electricity generation, recreational opportunities for the local community, and tourism. Done sensitively, the environmental trade-offs can be negligible. EXISTING IRRIGATION SCHEMES Many of the irrigation schemes that are in operation today were constructed, owned and managed by central government. This brought some advantages: it overcame market failures, the projects were completed, there was cheaper funding by leveraging off the Government balance sheet, and the projects offered employment. There were also hooks. Returns were questionable, and the operations inefficient. Reforms that began in the mid-1980s saw governments slowly divest ownership of the schemes, mainly to farmers who had formed local cooperatives. The majority of schemes were built in Otago and Canterbury and typically sourced water from the river, supplying farms through open canals with little to no large-scale water storage capacity. Although theses schemes provided (and still provide) an efficient means of getting water onto paddocks, they rely on natural water courses for their supply. During periods of extreme dry these water courses may be subject to extraction limits – ironically when irrigation is needed most.
Source: Ministry for the Environment
But despite the diminishing access to “easy water” there are a number of irrigation schemes around New Zealand that already provide a reliable source of water. In fact, about a third
Much of the recent focus from the Government has been on the development of new schemes to increase New Zealand’s irrigable area. However, there are also a number of upgrades underway, or planned, of existing schemes. These upgrades are to increase the coverage of irrigable land, as well as the schemes’ reliability. Such upgrades include new irrigation technology (think spray irrigation vs border dyke); additional storage capacity; and upgrading from open canals to piped systems. The opportunity from improved utilisation and capital upgrades of existing schemes is significant in its own right. In total we estimate 135,000 hectares, or 19 percent of New Zealand’s total irrigable land, is currently planning or undergoing some form of development or upgrade.
ANZ Agri Focus / June 2013 / 32 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS DEVELOPMENTS PLANNED OR UNDERWAY Location
Coverage (ha)
Ashburton Lyndhurst Irrigation Ltd
Scheme
Mid Canterbury
25,000
Upgrading open channels to a piped system.
Barrhill Chertsey Irrigation Scheme
Mid Canterbury
10,000
Potential storage and increasing irrigable area. Also possibility for electricity generation.
Central Otago
3,530
North Canterbury
170
Hawkdun Idaburn Loburn Irrigation Company
Development Plans
A feasibility study has been carried out to build a 3 15.6M m storage dam. Investigating storage during peak flows. 3
Mayfield Hinds Irrigation Ltd
Mid Canterbury
33,000
6.1 million m storage facility being constructed. Also considering upgrading to piping.
Morven Glenavy Ikawai (MGI) Irrigation
South Canterbury
24,000
They are planning to build a buffer pond for operational reliability and distribution efficiency. Storage pond is in design stage at lateral 3 outfall to the Waihoa River.
North Otago Irrigation Company Ltd
Otago North
14,000
Developing business case for staged expansion into the Awamoko Valley, and Kakanui Valley areas.
Valetta Irrigation Ltd
Mid Canterbury
7,400
Waimakariri Irrigation Scheme
North Canterbury
18,000
3
380,000m storage being built as upgrading to a piped system. A planned reservoir will provide approximately nine days of storage if no allowance is made for re-filling during the irrigation season.
Sources: ANZ, Irrigation NZ, MPI
Just about all of this development is in Canterbury and Otago. Irrigation NZ has estimated that the combination of improving on-farm technical and management efficiency, as well as replacing open irrigation races with piped distribution systems, could provide for an extension of up to 30,000 hectares (an extra 5 percent in area) within current local community irrigation schemes in Canterbury and North Otago. Already the Morven-Glenavy Irrigation Scheme has increased the irrigated area by in excess of 2,000 hectares through efficiencies from piping. The Mayfield–Hinds and Ashburton Lyndhurst Irrigation Schemes are currently investigating capital upgrades that would increase their irrigated areas by 6,500 and 4,000 hectares respectively. THE CURRENT NUMBERS The recent Agricultural Production survey completed by Statistics NZ showed some interesting changes to the irrigation landscape since 2007. Not only did the irrigable area increase by 17 percent over the last five years to 721,700 hectares, but there was a move to more water-efficient systems. Of the total irrigable area, 83 percent is in the South Island, with Canterbury accounting for the lion’s share at 62 percent of the total area. Of the 102,400 ha increase in irrigable area, 24,400 hectares (24 percent) was in the North Island and 78,100 hectares (76 percent) in the
(1)(2)(3)(4)
IRRIGABLE LAND IN NEW ZEALAND BY REGION
Irrigable land in year to 30 June Region
2007
2012
% Proportion change of total
Northland
8,700
7,800
-11%
1%
Auckland
6,300
5,700
-8%
1%
Waikato
16,600
21,000
27%
3%
Bay of Plenty
10,000
11,600
16%
2%
2,300
4,500
90%
1%
25,200
26,000
4%
4%
3,400
6,500
91%
1%
11,700
21,700
85%
3%
Gisborne Hawke’s Bay Taranaki Manawatu-Whanganui
Wellington Total North Island Tasman
12,900
16,600
29%
2%
97,100
121,500
25%
17%
10,700
12,000
12%
2%
300
300
0%
0%
26,700
29,800
12%
4%
Nelson Marlborough West Coast
600
2,300
317%
0%
Canterbury
385,300
444,800
15%
62% 13%
Otago
91,100
93,900
3%
7,500
17,200
128%
2%
Total South Island 522,200
600,300
15%
83%
Total New Zealand 619,300
721,700
17%
100%
Southland
(1) (2) (3) (4)
2007 and 2012 were both agricultural production census years. Figures may not add to the totals due to rounding. Estimates have been rounded to the nearest 100 hectares. Percentage changes are calculated on unrounded numbers.
Sources: ANZ, Statistics NZ
ANZ Agri Focus / June 2013 / 33 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS South Island. Canterbury’s share was very similar to the last survey in 2007, but the North Island’s share grew slightly. The Manawatu-Whanganui region accounted for 10,000 hectares (41 percent) of the total growth in the North Island. Both Taranaki and Gisborne almost doubled the land under irrigation during the survey period also. Interestingly, both Auckland and Northland showed reductions in the land under irrigation, probably due to an increase in urban sprawl and lifestyle blocks. Down south, Canterbury increased its irrigable area by 59,500 hectares, accounting for 76 percent of the increase in the South Island. Areas not usually associated with irrigation, such Southland and the West Coast, also showed significant increases in irrigable land, although this was off a low base. Both Tasman and Marlborough increased their irrigable area by 12 percent, and Otago showed a small gain of 3 percent. More efficient irrigation systems have also been put in place over the last five years. Overall there was a 15 percent reduction in the area that used flood systems and an increase in the area of spray (+27 percent) and micro (+10 percent) systems used. That said, there was considerable variation in the type of irrigation system used between the regions. Flood systems increased in all regions of the North Island (where data was available), whereas only Southland showed an increase of the South Island region. Canterbury reduced the amount of flood irrigation by a massive 16,500 ha and at the same time increased the use of spray systems by 78,400 ha. The difference looks to be the “new” irrigation added. IRRIGATION SYSTEMS BY ISLAND 2007
2012
% Proportion change of total
Flood systems North Island
2,800
5,700
103%
5%
South Island
108,100
88,800
-18%
15%
New Zealand
110,900
94,500
-15%
13%
Spray systems North Island
71,900
97,700
36%
82%
South Island
384,800
481,800
25%
80%
New Zealand
456,700
579,500
27%
80%
Micro systems North Island
16,000
15,700
-2%
13%
South Island
25,600
30,200
18%
5%
New Zealand
41,700
45,900
10%
6%
Sources: ANZ, Statistics NZ
Unfortunately, Statistics New Zealand is yet to release a breakdown of the different land uses for irrigated land. This information is expected to be released later in the year. However, based on the proportions from the 2007 survey, which showed 38 percent of irrigated land was used for dairying, 35 percent for other livestock, and 26 percent for horticulture and crops, we have estimated the areas in the table below. When the statistics are released we suspect they will reveal a significant lurch in favour of dairying. This expansion is likely to have come at the expense of other livestock under irrigation, where the return on capital compared with dairying has been a lot less during this period. This is expected to especially be the case in the South Island where the growth in milk production has been very strong over this period. IRRIGATED LAND BY FARM TYPE
Land use
hectares
%
hectares
%
% total land area
Dairy
2,016,421
14%
271,991
38%
13%
Forestry/ Other
1,861,246
13%
1,220
0%
0%
592,577
4%
188,738
26%
9%
Livestock
10,230,653
70%
255,988
35%
13%
Total
14,700,897 100%
721,700*
100%
5%
Land area
Horticulture/ Crop
Irrigated hectares
* Estimates based on data from the Statistics NZ 2007 Agricultural Production Survey. Note numbers may not add up due to rounding.
CURRENT IRRIGATION DEVELOPMENTS In 2011, the Government took the initial step of harnessing water’s potential by introducing a water strategy. Part of this strategy focused on developing irrigation schemes and water storage in order to “unlock economic growth and prosperity for our primary sector”. When the first irrigation schemes were built in the early-mid 1900s the Government realised that they would need to fund the construction due to the large size of the projects and the long investment horizons. Back then, constructing irrigation schemes also had the added benefit of providing employment during the depression years and increasing productivity in the agricultural sector. However, times have changed, and with lessons learnt from owning irrigation schemes and the obvious financial benefits farmers receive from irrigation (increased land value), the Government is not keen on being the sole provider of more schemes.
ANZ Agri Focus / June 2013 / 34 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS Although shying away from directly owning schemes, the Government has been proactive in providing funding for irrigation. The Sustainable Farming Fund, which invests up to $8 million per annum, has provided funding for a variety of irrigation and water projects. In 2007 the Government established the Community Irrigation Fund (CIF), a contestable fund of $5.7 million spread over 8 years. The fund was used to help promote community water storage, gain community and investor support, assist in carrying out engineering design for schemes, and provide assistance for local government to develop a strategic plan for water management with a focus on irrigation-related infrastructure. Whilst the CIF was originally meant to go through to 2016, the Government introduced the Irrigation Acceleration Fund (IAF) in 2011 that superseded it. The IAF was a significant step up in funding, with $35 million set aside until 2017. The aim of the fund is to support regional irrigation schemes in getting proposals to an investment-ready stage. The IAF also continues to support strategic water management studies and strategies and community irrigation schemes that were previously available through the Sustainable Farming Fund and the Community Irrigation Fund. Like the CIF, successful applicants of the IAF must provide contributions equal to, or greater than IAF funding, i.e. the IAF contribution can be up to 50 percent of the programme cost. As at 13th February 2013 the IAF had approved $10.2 million worth of funding. Irrigators received further good news in the recent Budget with the Government forming an investment company to manage funding for equity investment in the construction of regional-scale schemes. The Crown is expected to be a minority partner, investing on commercial terms, and ideally as a short-term investor. To date, $80 million has been set aside for this fund, with murmurs of up to $400 million possibly being available over the longer term. With commercial interests slowly releasing the untapped opportunity, and the catalyst provided by the Government, the race to increase our water storage capacity and irrigable land area has started to heat up. In terms of new water storage and irrigation schemes there are currently plans in place for 16 new schemes around the country. The table at the end of this article provides a summary of the schemes and their specific characteristics (size, location, storage capability etc) and progress to date.
In aggregate these 16 schemes are expected to increase the total irrigable land in New Zealand by 655,000 hectares. The schemes are at various stages on the development curve from preliminary assessment (most of the larger schemes) through to the initial stages of construction. By their very nature many of the projects are very complex, and due to their impacts on the wider community involve a great deal of collaboration and communication with stakeholders. Coupled with the extraordinary amount of planning needed, the time between the initial proposal and water arriving at the farm gate can be very long. Nevertheless, on completion these schemes would nearly double New Zealand’s total area under irrigation and mean nearly two-thirds of irrigable land has access to water. Some of these schemes have been in the pipeline for a number of years and are now at the stage where detailed design or construction can begin. For example, Stage 1 of the Central Plains Water scheme is about to get underway later this year, with the first water being delivered in the 2014-15 season. This will provide an initial 20,000 hectares of the total 60,000 hectares the project is offering and look to relieve some of the groundwater supply issues. In Mid-Canterbury the construction of the Tarras scheme is also very close to turning the first sod after recently releasing their prospectus. A number of other schemes are at various stages of planning, or undergoing detailed investigations. For example, the Wairarapa Water Use Project, which looks to store water capable of irrigating 30,000 hectares, has identified a number of potential sites that require further investigation. The Waimea Community Dam in the Tasman district is currently undergoing peer review of the dam design. Similarly, the Ruataniwha Water storage is currently seeking dam designs as well as detailed costings. Once these stages are completed, then the cost of water will enable farmers to decide whether to sign up or not. There is also plenty of work going on at the Hunter Downs scheme in South Canterbury with geotech investigations to assist in the design of canal works recently completed. A number of the large schemes are also at the preliminary assessment stage. The largest of these is the Lees Valley scheme in North Canterbury. This scheme could potentially irrigate 141,000 hectares, but in order to do this it could require a dam 180 metres high – considerably higher than our largest dam, Benmore (110m high). Interestingly, a dam this size would also take the best part of a decade to fill.
ANZ Agri Focus / June 2013 / 35 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS FUNDING THE SCHEMES
FINAL THOUGHTS
Building the proposed 16 schemes is not expected to be cheap, with a total projected cost of between $4 and $5 billion, or $6,100 to $7,600 per hectare. This is a sizeable figure, but given the uncertainty around where many of these schemes are going to be placed, the design etc, this number could move around significantly.
The scale of the proposed projects and enhancements currently been undertaken on existing schemes certainly is exciting for the primary sector. The ability to export embodied water and better manage the volatility of Mother Nature means huge attention needs to be given to deriving cash value from storage. It’s critical if New Zealand is serious about capturing the untold opportunities an increasing Asian middle class offers. Moreover, New Zealand’s balance sheet is still structurally impaired: there is a limit as to how long the nation can continue to run profligate current account deficits. More income is the palliative to balance sheet woes.
Coming up with the required capital will require innovative solutions. That said, one of the key issues for funding the schemes is less about the availability of funding, but more to do with the certainty of cash flow. One of the determining factors of whether a large-scale irrigation scheme can go ahead is the percentage of farmer uptake, or in other words how many farmers are going purchase water on day one. A high uptake equals good cashflow. The premise that irrigation increases productivity, reduces weatherrelated risk, and increases profit should hold true, and therefore the choice for a farmer to sign up to a scheme should be a mere formality. Well, not quite. For any farmer there are a number of issues to consider before any decision is made. Of course affordability is a main driver of any decision, but other factors also come into it. A change of land use may be needed. And the average age of a farmer continues to increase, often lending to different views on risk appetite for new investment. Coming up with the required capital will require an innovative funding model, or models. One such model involves the building and ownership of the scheme by an investor or group of investors. Once the scheme is up and running investors charge users per unit of water they use to earn a return. Once the development returns have been realised the infrastructure could be either transferred, or sold to farmers. Because this model is a purely commercial model, higher returns are required. Another model that could be used involves government providing bridge equity, as well as being a water rights holder. The government would hold the unallocated water rights and pay any associated water charges attached to the water rights to “underwrite” the success of the scheme. It can then sell shares with attached water rights to late-adopting farmers at the market price, which would provide a return on investment. By providing equity the government would also be able to regulate the price charged for water. This type of model could be done in conjunction with the farmer model. In this case government involvement is on purely commercial terms and would not be viewed as “subsidising” the schemes, as has been done historically.
We’d be remiss to be solely focused on the primary sector opportunity though. Water drives much of our electricity generation, features heavily in tourism activities, and plays a significant part in much of our social, cultural, and recreational identity. Pulling these aspects together in the strategies of each of the 16 new schemes is critical to capture the benefits of these investments and get the local community onboard. The larger challenge for NZ.Inc is to wrap an innovation strategy around unique legs of advantage such as water. This means that while we can talk a big game about irrigation and piping water onto the land, we need to think about being world class in all things engineering related to piping and irrigation in the first place. That’s taking an area of “primary” advantage into real value added.
ANZ Agri Focus / June 2013 / 36 of 40
EDUCATION CORNER: CAPTURING OPPORTUNITY – IRRIGATION INFRASTRUCTURE PROGRESS PROPOSED IRRIGATION SCHEMES IN NEW ZEALAND AND INDIVIDUAL DETAILS Scheme
Region
Area (000 ha)
Source
Storage
Cost ($m)
Completion
Update
Hawke’s Bay Regional Council
Ruataniwha Water Storage Project
Hawke’s Bay
25
Makaroro River
90 million cubic metres
232
2017
Two companies have been chosen for the scheme design with detailed costings being made by September 2013
Hawke’s Bay Regional Council
Ngaruroro/ Tutaekuri
Hawke’s Bay
18
TBC
Yes but unknown
100
2020
Promoter
Wairarapa Water Use Project
Wairarapa
30
TBC
Storage unknown amount
170
2018
To date preliminary studies have been completed that identified potential water storage sites. Further investigations into these sites are planned
Waimea Community Dam
Tasman
7.8
Lee River
13.4 million cubic metres
46
2018
Detailed dam design and peer review of design underway
Trustpower
Wairau
Marlborough
6
Wairau River
Run of River + On farm storage
320
2017
Part of hydro scheme on hold
Meridian/ Ngai Tahu
Amuri
North Canterbury
6
Wairau River
75 million cubic metres
30
2020
Part of hydro scheme; on hold until Regional Plan is finalised
Lees Valley
North Canterbury
141
Ashley, Esk and Waimakariri Rivers
700 million cubic metres
2240
2024
Proposed scheme
Central Plains
Mid Canterbury
60
Waimakariri and Rakaia Rivers
Lake Coleridge provides storage
258-409
2017
The programme is on track for canal construction to commence in September 2013. Stage 1 will cover an area of 20,000 ha.
450
2019
The scheme is currently applying for resource consents
36
2021
Currently trying to secure funding from the Otago Regional Council.
Greater Wellington Regional Council
Waimea Water Augmentation Committee
Environment Canterbury
Central Plains Water Ltd
Hurunui Water Project
Tarras Water
Waitohi Irrigation and Hydro Scheme
North Canterbury
60
Waitohi River
221 million cubic metres in reservoirs in the valley and 6.5 million cubic metres
Tarras
Central Otago
9
Clutha River
Run of River
Strath Taieri
Otago
1.2
Stony Creek and Burgan Stream
Raise level of existing weir
10
2020
Resource consents were granted by the Otago Regional Council. An appeal by the Department of Conservation was resolved through mediation in March 2011
Meridian, South Canterbury Irrigation Trust
Hunter Downs
South Canterbury
34
Waitaki River
Run of river
200
2017
Recently did geotech investigations to assist in the design of canal earthworks
Waihao Downs Irrigation Ltd
Waihao Downs
Waimate
6.8
Lower Waitaki River
Run of river
40
2020
Generating investor and community support
Maungaroa Irrigation Scheme
Te Kaha Peninsula
240
Kereru River
Yes but unknown
2
TBD
Project on Hold
Haka Valley Irrigation
Hakataramea Valley
1.9
Waitaki River
Run of river
“Manuherikia Irrigation Co-operative Society “
Dairy Creek
8.3
Lake Dunstan
Lake source
Strath Taieri Agricultural and Rural Tourism Trust
Maungaroa Irrigation Scheme Limited
Haka Valley Irrigation Ltd
Sources: ANZ, MPI, Irrigation NZ
85.9
ANZ Agri Focus / June 2013 / 37 of 40
KEY TABLES AND FORECASTS
FX RATES
ACTUAL
FORECAST (END MONTH)
Apr-13
May-13
6-Jun
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
NZD/USD
0.856
0.828
0.797
0.80
0.80
0.79
0.78
0.77
0.76
0.75
NZD/AUD
0.826
0.838
0.835
0.85
0.86
0.86
0.86
0.87
0.87
0.87
NZD/EUR
0.650
0.628
0.609
0.61
0.60
0.58
0.56
0.53
0.52
0.51
NZD/JPY
83.45
81.76
78.99
80.0
84.0
83.0
81.9
84.7
83.6
82.5
NZD/GBP
0.551
0.544
0.518
0.54
0.54
0.53
0.51
0.50
0.48
0.47
78.4
76.8
74.8
75.2
75.7
74.4
73.1
72.3
71.3
70.3
NZ TWI
INTEREST RATES
ACTUAL
FORECAST (END MONTH)
Apr-13
May-13
6-Jun
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
NZ OCR
2.50
2.50
2.50
2.50
2.50
2.50
2.75
3.00
3.00
3.25
NZ 90 day bill
2.66
2.65
2.64
2.80
2.80
2.80
3.20
3.30
3.30
3.70
NZ 10-yr bond
3.17
3.58
3.61
3.40
3.40
3.50
3.70
4.00
4.20
4.50
US Fed Funds
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.50
US 3-mth
0.27
0.28
0.27
0.30
0.30
0.30
0.30
0.35
0.35
0.60
AU Cash Rate
3.00
2.75
2.75
2.75
2.75
2.50
2.50
2.50
2.50
2.50
AU 3-mth
2.91
2.82
2.81
2.90
2.90
2.70
2.70
2.70
2.70
2.70
ECONOMIC INDICATORS
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
GDP (% q/q)
0.3
0.4
0.8
0.8
0.8
0.8
0.7
0.6
0.6
0.6
GDP (% y/y)
2.3
2.4
3.1
2.4
3.0
3.3
3.2
3.0
2.7
2.7
CPI (% q/q)
0.4
0.2
0.4
0.1
0.6
0.5
0.6
0.2
0.7
0.7
CPI (% y/y)
0.9
0.8
0.9
1.2
1.4
1.6
1.8
1.9
2.0
2.0
Employment (% q/q)
1.7
–0.5
0.5
0.5
0.4
0.4
0.3
0.3
0.3
0.3
Employment (% y/y)
0.4
–0.1
0.8
2.2
0.9
1.8
1.6
1.4
1.3
1.3
Unemployment Rate (% sa)
6.2
6.3
6.1
5.9
5.8
5.6
5.6
5.5
5.5
5.5
–4.7
–5.0
–5.0
–5.2
–5.6
–5.5
–5.4
–5.2
–5.1
–5.1
Terms of Trade (% q/q)
4.1
3.7
2.4
2.0
1.3
0.8
0.8
0.4
–0.1
–0.1
Terms of Trade (% y/y)
–3.0
3.2
9.2
13.0
9.7
6.7
5.0
3.3
1.8
1.8
Current Account (% GDP)
Figures in bold are forecasts. q/q: Quarter-on-Quarter, y/y: Year-on-Year
ANZ Agri Focus / June 2013 / 38 of 40
NEW ZEALAND’S 20 LARGEST EXPORT MARKETS
51 14 275 44 3
156 189 50 9 9 42 1
1
1
11
22
57 299 1,375
2 156 948
1 245 824
3 192 828
3 183 848
26
India
2 15 452 720
72 685
45 10 4 11
187 681
2 195 631
9 22 419 39 18 1 3 27 2 6
7
141 31 19 6 11 30 9 41 17 25 1
Algeria
15 355 832
3 26 135 1 310 913
33 13 155 3 4 11
1
4 12 2 197 30 17 2 6 37 16 2 8 11 4 29 1 23 31
Canada
18 20 95 4
7 3 20 2
1 40 3 227 63 60 25 2 1 2 1
Netherlands
75
15 7 18 8
6
1 1
97 13 12 251 102 77 29
UAE
1
47 137 2 164 52 32 12 93 9 16 1 9 5 10 41 3 21 8
Thailand
1 35 5 270 48 61 45 9 6 7 1 1 8
Philippines
43 25 8 295 45 28 25 14 12 26 3 7
Saudi Arabia
26 37 27 149 16 16 1 30 22 7 20 5 29
Taiwan
13 44 7 213 35 10 60 10 13 12 15
90 82 4 19 35 4 7 2 80 3
17
365 39 26 1
2
11
1 1
5
7
13
63 621
68 173 590
2 209 551
1 452
Algeria
112 603 1,617
1 18 3
236 18 56
Canada
24 2 2 25 272 55 1 62 42
540 30 28
Indonesia
4 119 31 9 13 132 51 61
Malaysia
132
Germany
50 1,351 4,259
160 10
UK
35 1,254 7,538
45 199 42 37 11 313 210 294 6 165 13 19 8 167 78 208 77 127 33 468 576 3,097
Korea
211 1,002 22 16 119 50 718 25 53 31 284 20 3
Hong Kong
320 52 65 283 1,851 81 5,763 9,729
504 150 19 2,321 175 104 279 107 11 13 29 379 198 1,208 169 28 174 379
Singapore
349 375 48 21
Japan
7 14 42 51 73 215 49 70
USA
2,667 2,227 443 7,022 1,916 1,453 1,933 1,024 420 816 1,212 752 563 1,821 1,097 367 586 1,475 2,042 992 15,424 46,254
China
Sheepmeat Beef Other Meat Milk Powder Butter Cheese Whey/Casein Kiwifruit Apples Other Fruit/Vege Wine Wool Skins/Hides Logs Sawn Timber Fibreboard/Plywood Wood Pulp Fish/Seafood Crude Oil Aluminium Remainder TOTAL
Australia
Global Total
NZ’S TOP EXPORT MARKETS FOR THE 12 MONTHS ENDED APRIL 2013 (NZ$M)
-13 64 225
-13
2 -10 2 -5 -1 33 -159 -77 -230
-1 -13 4 -7 -15 19 1 -13 -3
5 -18 6
-3 -1
1 -31 -2 6 4 -17 -15 -3
34 -34 4 1 2 2
3 1 1
-1
-2
1
-23 -3
-3
2
-9 -13 135
-2 118 55
4 -36 -96
1 5 -55
10 92
2 -2 -8
1 4 2 -51 -18 3 2 2 2 6 1 -1
-60 -9 -15 -13 14 15 1 1
-1
-103
1 -2 -4 -1
2 31 -22
-1 -37 -92
-7 -3 11 2 -24 43 -44
-9 12
2 5 -1 23 -9 1 -1 3 9
4
10 6 3 -7 -13 30 6
-3 1
1
-59 -29
-4 -7 -21 -2
-1
-2 -1
1 12 43
-3 -86 -213
5 -2
4 44
-1 -1
-1 5
-32 -4 2 -2
-32 -20 4 1 1 15 2 1 -2 4 1 -4
-10 3 -3 5
-19 -60
-4 3
-24 -50
Netherlands
UAE
Thailand
Philippines
Saudi Arabia
India
-15 -5 7 79 -3 -2 -5 1 -1
Taiwan
1 -1 1 -26 -16 1 4
Indonesia
-60 1 -11
Malaysia
UK
Korea
Japan
USA
China 4 104 1,675
7 -5
-14 18 3 13 -9 -8 2 -11 6 -16 1 -2
-1
-28 -5 -12 -2 1 -2 4 -1 2 4 -4 -1
-4
7
-1 64 1 1 -1 16
-17 -37
-9 4 2 2
17
60 -35 13 1
1 16
-1
-1
-1
-20 56
-15 40 -13
-2 3 -40
57
Algeria
-11 -15 -1 9 -324 -10 -272 -826
-76 201 1 3 -4 45 -24 -1 13 -9 42 -6
Canada
-76 3 -31 5
282 135 5 695 -34 26 62 24 10 5 5 -37 -22 271 40 5 -18 110
Hong Kong
1 -4 9 -26 -33 -34 -21 6
Singapore
-93 234 -10 301 -433 49 96 -27 82 -77 51 -144 -24 231 11 -21 -39 -10 -184 -183 -209 -398
Germany
Sheepmeat Beef Other Meat Milk Powder Butter Cheese Whey/Casein Kiwifruit Apples Other Fruit/Vege Wine Wool Skins/Hides Logs Sawn Timber Fibreboard/Plywood Wood Pulp Fish/Seafood Crude Oil Aluminium Remainder TOTAL
Australia
Global Total
NZ MERCHANDISE EXPORTS ANNUAL CHANGE BETWEEN THE 12 MONTHS ENDED APRIL 2013 AND A 12 MONTH SPAN A YEAR EARLIER (NZ$M)
4 3 -4 2 -11 -6 4 6 13 -2 -77 -90
-5 -1
-3 -1
1 13 2
2 5 -7 -5 -1
-6 -3
-1
-5 46 41
-16
-28 1 -7
6 -6 10 2 -1 -2
2 -1 1 23 -1 1 -1 1 1
-5 -4 2 13 -1
-1 -1 1
4
1
-1 -4
-2
-1
1
2
-3 -3 46
-22
1 -2 -2 -1
9 -14
20 85
1 -22
-1 -1 -33
-3
-3 10 -1 -24 -1 18 -9
-6 2
1 4
18 -1 4
-10 3 -6 1
1 -2 -9 1
-1
1
-2
25 -3 -1
-1 -3 3
24 1 1
-3
5 -1
-1 1 1 4
-1 3 -4
-1 1
-2 1
-1
11 21
-2
-1 -16 -22
-8
-9 1
9
Netherlands
UAE
Thailand
Philippines
Saudi Arabia
-6 -1 -10 2 -3 8
India
-6 -2 -1 -12 -5 -1 -3
Taiwan
Indonesia
-6 -31 -70
-2 1 -1
Hong Kong
-5 5 31
2 -1
-7
-3 1 1 -4 2
Singapore
1 20 662
7 -2 12 -3
Germany
3
-1 -2 3 -2 -14 2 -6
-2 -18
1 1 1 12 -7 13 -4 -24
UK
-29 58 2 3
Korea
Japan
141 88 2 236 -17 8 17 -9 8 1 -1 -1 -2 130 11 1 -1 27
Malaysia
-3 3 2 -9 -10 -7 5
USA
17 122 -5 258 2 6 -5 -51 51 17 8 -28 6 144 -11 -22 6 11 33 -28 38 570
China
Sheepmeat Beef Other Meat Milk Powder Butter Cheese Whey/Casein Kiwifruit Apples Other Fruit/Vege Wine Wool Skins/Hides Logs Sawn Timber Fibreboard/Plywood Wood Pulp Fish/Seafood Crude Oil Aluminium Remainder TOTAL
Australia
Global Total
NZ MERCHANDISE EXPORTS ANNUAL CHANGE BETWEEN THE 3 MONTHS ENDED APRIL 2013 AND A 3 MONTH SPAN A YEAR EARLIER (NZ$M)
-12 1 -2
4 -7 -8
4 4 1 8 5 -3
-2
2
2 1 2 4
8
-2 11
-1
1
-1
-4 16
3 17
-3 27
-5 14 19
-1 -4 -5
-3
ANZ Agri Focus / June 2013 / 39 of 40
IMPORTANT INFORMATION
The distribution of this document or streaming of this video broadcast (as applicable, “publication”) may be restricted by law in certain jurisdictions. Persons who receive this publication must inform themselves about and observe all relevant restrictions. 1. COUNTRY/REGION SPECIFIC INFORMATION: AUSTRALIA. This publication is distributed in Australia by Australia and New Zealand Banking Group Limited (ABN 11 005 357 522) (“ANZ”). ANZ holds an Australian Financial Services licence no. 234527. A copy of ANZ’s Financial Services Guide is available at http://www.anz.com/documents/AU/aboutANZ/FinancialServicesGuide.pdf and is available upon request from your ANZ point of contact. If trading strategies or recommendations are included in this publication, they are solely for the information of ‘wholesale clients’ (as defined in section 761G of the Corporations Act 2001 Cth). Persons who receive this publication must inform themselves about and observe all relevant restrictions. BRAZIL. This publication is distributed in Brazil by ANZ on a cross border basis and only following request by the recipient. No securities are being offered or sold in Brazil under this publication, and no securities have been and will not be registered with the Securities Commission – CVM. BRUNEI. JAPAN. KUWAIT. MALAYSIA. SWITZERLAND. TAIPEI. This publication is distributed in each of Brunei, Japan, Kuwait, Malaysia, Switzerland and Taipei by ANZ on a cross-border basis. EUROPEAN ECONOMIC AREA (“EEA”): UNITED KINGDOM. ANZ is authorised and regulated in the United Kingdom by the Financial Services Authority (“FSA”). This publication is distributed in the United Kingdom by ANZ solely for the information of persons who would come within the FSA definition of “eligible counterparty” or “professional client”. It is not intended for and must not be distributed to any person who would come within the FSA definition of “retail client”. Nothing here excludes or restricts any duty or liability to a customer which ANZ may have under the UK Financial Services and Markets Act 2000 or under the regulatory system as defined in the Rules of the FSA. GERMANY. This publication is distributed in Germany by the Frankfurt Branch of ANZ solely for the information of its clients. OTHER EEA COUNTRIES. This publication is distributed in the EEA by ANZ Bank (Europe) Limited (“ANZBEL”) which is authorised and regulated by the FSA in the United Kingdom, to persons who would come within the FSA definition of “eligible counterparty” or “professional client” in other countries in the EEA. This publication is distributed in those countries solely for the information of such persons upon their request. It is not intended for, and must not be distributed to, any person in those countries who would come within the FSA definition of “retail client”. FIJI. For Fiji regulatory purposes, this publication and any views and recommendations are not to be deemed as investment advice. Fiji investors must seek licensed professional advice should they wish to make any investment in relation to this publication. HONG KONG. This publication is distributed in Hong Kong by the Hong Kong branch of ANZ, which is registered by the Hong Kong Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities. The contents of this publication have not been reviewed by any regulatory authority in Hong Kong. If in doubt about the contents of this publication, you should obtain independent professional advice. INDIA. This publication is distributed in India by ANZ on a cross-border basis. If this publication is received in India, only you (the specified recipient) may print it provided that before doing so, you specify on it your name and place of printing. Further copying or duplication of this publication is strictly prohibited. NEW ZEALAND. This publication is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised adviser service under the Financial Advisers Act 2008. OMAN. This publication has been prepared by ANZ. ANZ neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently ANZ is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. The information contained in this publication is for discussion purposes only and neither constitutes an offer of securities in Oman as contemplated by the Commercial Companies Law of Oman (Royal Decree 4/74) or the Capital Market Law of Oman (Royal Decree 80/98), nor does it constitute an offer to sell, or the solicitation of any offer to buy non-Omani securities in Oman as contemplated by Article 139 of the Executive Regulations to the Capital Market Law (issued vide CMA Decision 1/2009). ANZ does not solicit business in Oman and the only circumstances in which ANZ sends information or material describing financial products or financial services to recipients in Oman, is where such information or material has been requested from ANZ and by receiving this publication, the person or entity to whom it has been dispatched by ANZ understands, acknowledges and agrees that this publication has not been approved by the CBO, the CMA or any other regulatory body or authority in Oman. ANZ does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. Nothing contained in this publication is intended to constitute Omani investment, legal, tax, accounting or other professional advice. PEOPLE’S REPUBLIC OF CHINA. If and when the material accompanying this publication does not only relate to the products and/or services of Australia and New Zealand Bank (China) Company Limited (“ANZ China”), it is noted that: This publication is distributed by ANZ or an affiliate. No action has been taken by ANZ or any affiliate which would permit a public offering of any products or services of such an entity or distribution or re-distribution of this publication in the People’s Republic of China (“PRC”). Accordingly, the products and services of such entities are not being offered or sold within the PRC by means of this publication or any other method. This publication may not be distributed, re-distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations. If and when the material accompanying this publication relates to the products and/or services of ANZ China only, it is noted that: This publication is distributed by ANZ China in the Mainland of the PRC. QATAR. This publication has not been, and will not be: lodged or registered with, or reviewed or approved by, the Qatar Central Bank (“QCB”), the Qatar Financial Centre (“QFC”) Authority, QFC Regulatory Authority or any other authority in the State of Qatar (“Qatar”); or authorised or licensed for distribution in Qatar, and the information contained in this publication does not, and is not intended to, constitute a public offer or other invitation in respect of securities in Qatar or the QFC. The financial products or services described in this publication have not been, and will not be: registered with the QCB, QFC Authority, QFC Regulatory Authority or any other governmental authority in Qatar; or authorised or licensed for offering, marketing, issue or sale, directly or indirectly, in Qatar. Accordingly, the financial products or services described in this publication are not being, and will not be, offered, issued or sold in Qatar, and this publication is not being, and will not be, distributed in Qatar. The offering, marketing, issue and sale of the financial products or services described in this publication and distribution of this publication is being made in, and is subject to the laws, regulations and rules of, jurisdictions outside of Qatar and the QFC. Recipients of this publication must abide by this restriction and not distribute this publication in breach of this restriction. This publication is being sent/issued to a limited number of institutional and/or sophisticated investors (i) upon their request and confirmation that they understand the statements above; and (ii) on the condition that it will not be provided to any person other than the original recipient, and is not for general circulation and may not be reproduced or used for any other purpose. SINGAPORE. This publication is distributed in Singapore by the Singapore branch of ANZ solely for the information of “accredited investors”, “expert investors” or (as the case may be) “institutional investors” (each term as defined in the Securities and Futures Act Cap. 289 of Singapore). ANZ is licensed in Singapore under the Banking Act Cap. 19 of Singapore and is exempted from holding a financial adviser’s licence under Section 23(1)(a) of the Financial Advisers Act Cap. 100 of Singapore. In respect of any matters arising from, or in connection with the distribution of this publication in Singapore, contact your ANZ point of contact.
ANZ Agri Focus / June 2013 / 40 of 40
IMPORTANT INFORMATION
UNITED ARAB EMIRATES. This publication is distributed in the United Arab Emirates (“UAE”) or the Dubai International Financial Centre (as applicable) by ANZ. This publication: does not, and is not intended to constitute an offer of securities anywhere in the UAE; does not constitute, and is not intended to constitute the carrying on or engagement in banking, financial and/or investment consultation business in the UAE under the rules and regulations made by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or the United Arab Emirates Ministry of Economy; does not, and is not intended to constitute an offer of securities within the meaning of the Dubai International Financial Centre Markets Law No. 12 of 2004; and, does not constitute, and is not intended to constitute, a financial promotion, as defined under the Dubai International Financial Centre Regulatory Law No. 1 of 200. ANZ DIFC Branch is regulated by the Dubai Financial Services Authority (“DFSA”). The financial products or services described in this publication are only available to persons who qualify as “Professional Clients” or “Market Counterparty” in accordance with the provisions of the DFSA rules. In addition, ANZ has a representative office (“ANZ Representative Office”) in Abu Dhabi regulated by the Central Bank of the United Arab Emirates. ANZ Representative Office is not permitted by the Central Bank of the United Arab Emirates to provide any banking services to clients in the UAE. UNITED STATES. If and when this publication is received by any person in the United States or a “U.S. person” (as defined in Regulation S under the US Securities Act of 1933, as amended) (“US Person”) or any person acting for the account or benefit of a US Person, it is noted that ANZ Securities, Inc. (“ANZ S”) is a member of FINRA (www.finra.org) and registered with the SEC. ANZ S’s address is 277 Park Avenue, 31st Floor, New York, NY 10172, USA (Tel: +1 212 801 9160 Fax: +1 212 801 9163). Except where this is a FX related publication, this publication is distributed in the United States by ANZ S (a wholly owned subsidiary of ANZ), which accepts responsibility for its content. Information on any securities referred to in this publication may be obtained from ANZ S upon request. Any US Person receiving this publication and wishing to effect transactions in any securities referred to in this publication must contact ANZ S, not its affiliates. Where this is an FX related publication, it is distributed in the United States by ANZ’s New York Branch, which is also located at 277 Park Avenue, 31st Floor, New York, NY 10172, USA (Tel: +1 212 801 9160 Fax: +1 212 801 9163). ANZ S is authorised as a broker-dealer only for US Persons who are institutions, not for US Persons who are individuals. If you have registered to use this website or have otherwise received this publication and are a US Person who is an individual: to avoid loss, you should cease to use this website by unsubscribing or should notify the sender and you should not act on the contents of this publication in any way. 2. DISCLAIMER Except if otherwise specified above, this publication is issued and distributed in your country/region by ANZ, on the basis that it is only for the information of the specified recipient or permitted user of the relevant website (collectively, “recipient”). This publication may not be reproduced, distributed or published by any recipient for any purpose. It is general information and has been prepared without taking into account the objectives, financial situation or needs of any person. Nothing in this publication is intended to be an offer to sell, or a solicitation of an offer to buy, any product, instrument or investment, to effect any transaction or to conclude any legal act of any kind. If, despite the foregoing, any services or products referred to in this publication are deemed to be offered in the jurisdiction in which this publication is received or accessed, no such service or product is intended for nor available to persons resident in that jurisdiction if it would be contradictory to local law or regulation. Such local laws, regulations and other limitations always apply with non-exclusive jurisdiction of local courts. Before making an investment decision, recipients should seek independent financial, legal, tax and other relevant advice having regard to their particular circumstances. The views and recommendations expressed in this publication are the author’s. They are based on information known by the author and on sources which the author believes to be reliable, but may involve material elements of subjective judgement and analysis. Unless specifically stated otherwise: they are current on the date of this publication and are subject to change without notice; and, all price information is indicative only. Any of the views and recommendations which comprise estimates, forecasts or other projections, are subject to significant uncertainties and contingencies that cannot reasonably be anticipated. On this basis, such views and recommendations may not always be achieved or prove to be correct. Indications of past performance in this publication will not necessarily be repeated in the future. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Additionally, this publication may contain ‘forward looking statements’. Actual events or results or actual performance may differ materially from those reflected or contemplated in such forward looking statements. All investments entail a risk and may result in both profits and losses. Foreign currency rates of exchange may adversely affect the value, price or income of any products or services described in this publication. The products and services described in this publication are not suitable for all investors, and transacting in these products or services may be considered risky. ANZ and its related bodies corporate and affiliates, and the officers, employees, contractors and agents of each of them (including the author) (“Affiliates”), do not make any representation as to the accuracy, completeness or currency of the views or recommendations expressed in this publication. Neither ANZ nor its Affiliates accept any responsibility to inform you of any matter that subsequently comes to their notice, which may affect the accuracy, completeness or currency of the information in this publication. Except as required by law, and only to the extent so required: neither ANZ nor its Affiliates warrant or guarantee the performance of any of the products or services described in this publication or any return on any associated investment; and, ANZ and its Affiliates expressly disclaim any responsibility and shall not be liable for any loss, damage, claim, liability, proceedings, cost or expense (“Liability”) arising directly or indirectly and whether in tort (including negligence), contract, equity or otherwise out of or in connection with this publication. If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. ANZ and its Affiliates do not accept any Liability as a result of electronic transmission of this publication. ANZ and its Affiliates may have an interest in the products and services described in this publication as follows: • They may receive fees from customers for dealing in the products or services described in this publication, and their staff and introducers of business may share in such fees or receive a bonus that may be influenced by total sales. • They or their customers may have or have had interests or long or short positions in the products or services described in this publication, and may at any time make purchases and/or sales in them as principal or agent. • They may act or have acted as market-maker in products described in this publication. ANZ and its Affiliates may rely on information barriers and other arrangements to control the flow of information contained in one or more business areas within ANZ or within its Affiliates into other business areas of ANZ or of its Affiliates. Please contact your ANZ point of contact with any questions about this publication including for further information on the above disclosures of interest. This document has been prepared by ANZ Bank New Zealand Limited, Level 7, 1 Victoria Street, Wellington 6011, New Zealand, Ph 64-4-802 2361, Fax 64-4-496 8639, e-mail
[email protected], http://www.anz.co.nz
